While the bankruptcy of Brazilian seed company Selecta Sementes appears to be an isolated incident, more derivative and refinancing-related distress is seen coming in Brazil’s agricultural sector, say advisory experts. Beef processors and sugar and ethanol companies are particularly vulnerable, they add. Glauco Abdala, advisory specialist at Brazilian restructuring boutique Galeazzi Associados’ said recently that an abundance of credit to the sector is generating a rollover crisis at a number of agricultural companies. Generally in LatAm, currency volatility has hurt exporters’ hedging mechanisms and more fallout could still be coming, say credit analysts. “To the extent [LatAm continues to see] high volatility and capital markets remain frozen, the risks [of defaults and bankruptcies] will be higher,” says Daniel Kastholm, corporate credit analyst at Fitch. He adds while Fitch believes most of the large derivatives-related losses in the region have been announced, it is still unclear how much counterparty loss remains unreported. In Brazil, Votorantim, Sadia and Aracruz announced close to BRL5bn in losses, while in Mexico Comerci filed for bankruptcy amid derivatives implosion. Durango also filed for creditor protection. Prior to these incidents, LatAm’s most recent defaults occurred in 2003, with Durango, Avianca and Argentina’s CLISA, according to Fitch.
Category: Daily Brief
Lenders Take Haircut in Selecta Fire Sale
Creditors of Brazilian seed specialist Selecta Sementes stand to take an average haircut of around 38% on roughly $400m worth of debt following its restructuring, say people close to the matter. The private company went into bankruptcy in May following losses stemming from CBOT-traded soy options and two days ago received judicial approval to sell itself to Argentina’s Los Grobo for $55m. Total outstanding debt, which includes several facilities – local, cross-border, secured and unsecured – is being reduced to $250m, says an executive close to the workout who declines to be named. Some lenders are being paid back in full while others are taking reductions. Among the main creditors are Santander, ING, BES Investimento and Credit Suisse, which participated in an $80m secured capex facility to Selecta prior to its implosion, says the executive. The Swiss shop also had a mandate to take Selecta public on the Bovespa, though this was halted when the company ran into trouble. More than 20 other banks are also heard involved. Selecta has recently received an additional $30m line from a bank group to continue building out a seed crushing facility, which is heard paying close to Libor plus 300bp. Selecta hired Rothschild to advise it through the restructuring.
IDB Lends $45m to Mexico
The IDB has approved a $45m loan to the Mexican government of which the local counterpart will contribute $10.4m from sales tax revenues. The loan has an estimated disbursement period of 54 months and a Libor-based interest rate, the IDB says. The funds, says the bank, will be used to improve the quality of public expenditures through the implementation and consolidation of a new results-based budgeting system.
MasterCard Sees LatAm Boost
MasterCard has reported a 15.5% hike in LatAm/Caribbean volume to $48bn equivalent for the third quarter, and sees general improvement across the board. “Despite the challenging times facing the global economy, MasterCard’s Latin America and Caribbean region has once again reported double-digit growth,” says Richard Hartzell, president for LatAm/Caribbean at MasterCard. Purchase volume reached $26bn in Q3, up 18.9% on a local currency basis, including purchase volume plus cash volume and includes the impact of balance transfers and convenience checks. The number of MasterCard-branded cards increased 19.3% as of the end of the third quarter of 2008, totaling 110m cards. “Unlike many other industries, the payments industry, particularly in Latin America, is still in very early stages of maturity and we continue to see a rapid uptake of card-based electronic payments,” says Hartzell. “As the secular shift from paper-based payments to electronic payments evolves we remain focused on delivering value to all parties involved in the payments chain,” he adds.
Vivo Seals Short Paper Sale
Brazilian wireless operator Vivo has completed its BRL550m promissory notes issue. The 180-day notes pay 115% of the DI rate. Vivo, jointly owned by Portugal Telecom and Spain’s Telefonica, will use proceeds to repay short-term debt. Banco do Brasil and HSBC managed the sale. Vivo sold BRL500m in 1-year notes in July at 106.5% of DI, and this month took out a BRL389m 8-year credit facility through the Banco do Nordeste development bank.
Voto Still Wants Aracruz
Votorantim Group’s paper and pulp unit VCP is still interested in acquiring a 28% stake in Aracruz from shareholder group Arapar. Voto’s IR executives say the talks for the acquisition are still ongoing, despite recent reports the deal had fallen apart. Arapar, which is controlled by the Lorentzen Group, had agreed to sell the stake to VCP, giving it control of the company, for $1.7bn earlier this year, but the deal failed when Aracruz’s stock plummeted as the company posted derivatives-related losses and was subsequently downgraded. The transaction is presumably being hammered own at lower valuations. Credit Suisse is advising Lorentzen and JPMorgan is advising VCP. JPMorgan also agreed to extend a $1.8bn bridge loan to VCP prior to the deal collapsing. The financing has been suspended since then.
Argie Workout Suspended
The combination of Argentina’s souring economy and the fallout from the government’s pension fund takeover plan make an agreement with holdout creditors proposed earlier this year unlikely in 2008, according to a banker on the deal. Argentina pleased investors in September with talk of a workout plan with holdouts from its 2005 restructuring. The sovereign hired Citi, Barclays and Deutsche Bank to run the talks, which involve renegotiating terms on ARP and USD debt. However, President Kirchner’s plan to nationalize $26bn in private pensions – passed in Argentina’s lower house Friday and headed for the Senate – has jolted the country’s markets, hurt investor sentiment, upending the tenuous stability that had made such talks even a marginal possibility. “The par bonds, which are part of the USD denominated bonds, are trading at 17 [cents on the dollar,]” says one hedge fund investor whose shop has historically bought Argentine bonds. “If I’m holding untendered debt at levels below the 2005 renegotiation, it’s not a good time to come to me with these kinds of talks,” he adds. It is crucial that the workout happen at the same time as Argentina implements its promised Paris Club debt and local liability renegotiation, says the banker. It does not make sense to proceed with only one of those three items, he adds. Argentine watchers say that in mid-October Nestor Kirchner, former president and Cristina’s husband, who is widely believed to hold the reins of power in the country, felt that a deteriorating international environment meant that even if it reconciled itself with markets, Argentina would not be able to raise additional finance. “Nobody knows,” says a banker working with Argentina, asked about what the sovereign will do next.
Gruma Descends Ratings Scale
S&P said it lowered Gruma’s long-term corporate and perpetual bonds ratings to B+ from BB, and left it on credit watch with negative implications to reflect a perception that leverage will increase and liquidity tighten because of unwinding of derivatives positions. Gruma’s $300m 7.75% perp traded unchanged at 42.0 between October 31 and November 7, according to Credit Suisse. As of September 30, Mexican corn flour and tortilla producer and distributor Gruma had $62m in cash and about $50 million in committed credit lines. Debt maturities total $58m in the fourth quarter of 2008 and approximately $90m in 2009, adds S&P. On October 13, the agency cut Gruma to BB from BBB minus based on a perception that financial policy had become more aggressive, as evidenced by continued use of derivatives. On October 28, Gruma reported mark-to-market losses of $788m on open foreign exchange derivative instruments with several counterparties. In addition, it reported that it had reached agreement to close derivatives positions with the only counterparty entitled to make margin calls. Gruma is expected to pay this settlement by November 25, S&P says. “The current rating incorporates our expectation that the company will achieve a resolution with the other counterparties to close its remaining derivative positions,” it adds.
Cemex Readies MXP5.7bn Swap
Cemex plans to launch a tender offer as soon as today to holders of MXP5.7bn of four issues of its certificados bursatiles. It is offering an UDI or MXP denominated 2011 bond in its place as part of a liability management exercise. The offer period is set to start today or tomorrow, depending on regulatory approval, and last until December 10, or longer if extended. After getting into derivatives trouble and seeing its global credit ratings plummet, the highly-levered cement maker is trying to head off rapidly approaching local maturities. The offer will be extended to holders of its 6.28% and 5.30% UDI-denominated notes maturing December 15, 6.50% UDI-denominated notes maturing January 23 and MXP-denominated bonds paying Cetes plus 0.99% due in April. Participating holders will have their pick of new September 2011 MXP-denominated notes paying a spread over TIIE, or UDI-denominated notes paying a fixed coupon. Each day during the process a floor price for the new notes will be established, until the offer concludes. Cemex did not disclose the initial floor price, though it is expected to be attractive relative to existing coupons. The new notes are rated AA on a national scale. Banamex and BBVA Bancomer are managing the process.
Corn Products Pulls Merger with Bunge
Lima-based Derivados del Maiz confirms in a letter to Conasev that the board of its parent company, Corn Products International, has opted to withdraw its support for a merger with White Plains-based agribusiness company Bunge. As a result of the withdrawal, Corn Products will pay Bunge $10m, the letter says. The merger would have had a deal value of about $4.2bn, according to Dealogic, and been paid for in stocks. Lazard advised Corn Products while Morgan Stanley and Credit Suisse advised Bunge, Dealogic data shows.