Category: Corporate & Sovereign Strategy

Argentina may be doing well in the World Cup, but a survey by RBC shows clients believe it is the second most likely G20 country to default on its sovereign debt, after Italy. Although RBC says the prospects of another moratorium are relatively low, almost one-third of respondents place the odds of this occurring at 50% or more. The study polled 440 senior executives from around the globe last month on their outlook for the future of capital markets, and Mexico was also highlighted as a risk. Respondents included 229 senior executives from commercial and investment banks, hedge funds and private equity firms and 211 executives from non-financial companies active in capital markets. Separately, Morgan Stanley believes Argentina will be able to meet its financing needs over the next 18 months, even if the global economy relapses. The shop explains that if the world were to experience a downturn similar to that of 2008-09, fiscal deterioration would add about $12bn in financing needs over the next 18 months, which could put Argentina’s funding requirements at almost $32bn for 2010-11. However, it says that the government can count on the $29bn in excess reserves expected by the end of 2010, as well as $18bn in public sector deposits and the near $2bn-$3bn in potential debt purchases that local banks could make to make ends meet. Bulltick also considers an Argentine default highly unlikely to take place in the forthcoming years. It notes that the nation is immersed in economic acceleration, and funding options remain widespread. This should mean higher tax revenues, which coincides with an ample trade surplus, a large pool of external reserves, high enough public sector savings, and the fact that the government has the control of the pension savings of the country. Bulltick predicts GDP growth to be over 6.5% for 2010, higher than the central bank’s forecast of 4.5%.

Creditors agreed to exchange roughly $12.1bn in defaulted bonds, or 66% of the $18.3bn Argentina had been targeting, according to wire reports citing the economy minister. This is more than the 60% Argentina had been ready to settle for, but analysts say it is not enough to get the troubled sovereign back to international capital markets at affordable rates. “The government will most likely not go ahead with the issuance of up to $1bn in new Discount 2017 given that market access at the single digit rate desired by the government is not possible at this stage,” says Goldman Sachs. It notes that the government claims all main non-litigant institutional investors holding about $8.5bn in defaulted debt participated, along with 75% of Italian retail and 36% of non-Italian retail. Litigating holdouts with about $4.5bn in defaulted debt did not participate. “There remains around $6bn defaulted debt that has not been swapped and this might continue to be a source of legal risk; potentially complicating access to international markets,” adds Goldman. It adds that there is no clear strategy to deal with more than $6bn in Paris Club arrears. Final terms are set to be announced June 30 and settlement August 11, and much depended on support from Italy, where a significant bulk of holdout retail holders resides. Barclays is global coordinator on the offer to holdouts, with Citi and Deutsche as joint dealer managers. BNY Mellon is exchange agent.

Retail holders of defaulted Argentine debt had until yesterday to respond to the sovereign’s offer, amid speculation that the deal would stay open to boost participation. Final terms are to be announced June 30 and settlement August 11, and much depended on support from Italy, where a significant bulk of holdout retail holders resides. The sovereign is reported to be expecting to get more than 60% of the $18.3bn the sovereign admits to owing, short of the 80%-90% that some analysts are looking for. “While Argentina may reach its arbitrary goal of an adhesion rate of 60%, the country will be left with tens of billions of dollars in outstanding obligations, hundreds of court judgments still standing against the country and no access to international capital markets,” says American Task Force Argentina (AFTA), the bondholder group. “The Argentine government will still owe more than $30 billion to creditors arising out of its 2001 default. Until it fully settles these debts and satisfies the outstanding legal judgments against it, Argentina will be unable to normalize relations in the international community,” adds AFTA. Barclays is global coordinator on the offer to holdouts, with Citi and Deutsche as joint dealer managers.

Argentina’s Metrogas says it is seeking bankruptcy protection after an 11-year government rate freeze hurt company’s finances. Metrogas says the rates it is allowed to charge have not increased in the past 11 years, but during that time operating costs have more than tripled. The company had been hoping a tariff increase announced in 2008 would allow it to improve liquidity and boost the debt profile. Metrogas has $250m in debt, according to Moody’s, which lowered the rating to Ca and withdrew coverage on the bankruptcy plan. The gas utility 70% owned by a BG and Repsol YPF consortium faces high refinancing risks in 2010 and 2011, when maturities will reach $21m and $42m, respectively, Moody’s says. “The government has taken an uncompromising and oftentimes hostile stance towards the regulated utilities and has blatantly refused to update utility tariffs in line with the observed increase in production costs,” Goldman Sachs says in a report. “For instance, electricity and natural gas prices have to a great extent been frozen since the 2001-02 financial crisis. This has affected the profitability and cashflow position of the utilities sector which jointly with a private sector unfriendly government stance is generating low levels of investment observed in these critical sectors,” it adds.

Comercial Mexicana (Comerci) expects to file for Concurso Mercantil in the next few days to complete its debt restructuring plan, it says. Comerci shareholders approved last week a $1.54bn debt restructuring plan reached last month with derivatives counterparties and other creditors. “Creditors will be in a very solid position relative to the credit risk assumed,” says Barclays. This takes into consideration the value of CCM real estate, which secures the new debt in the deal, at $1.2bn, and the cashflow generating ability of the consolidated entity. The shop expects healthy appetite for the bonds in the secondary. Under the agreement, which also requires the approval of creditor committees, the Mexican retailer will issue various tranches of new MXP and USD debt, with an average maturity of 6.7 years. It consists of MXP16.32bn in fixed-rate debt paying 9.25% and floating-rate debt paying TIIE plus 275bp-400bp, as well as $226.3m in 7% dollar bonds. The deal also includes a cash payment of $45m on closing, and a lock-up fee for certain bondholders equivalent to 1 percentage point of principal amount held. The agreement excludes MXP1.5bn in domestic bonds recently swapped for new 7-year notes, and the new debt is backed by the company’s real estate holdings and stock. Comerci defaulted in 2008 amid crippling derivatives losses.

Comercial Mexicana shareholders have approved a $1.54bn debt restructuring plan reached last month with derivatives counterparties and other creditors. Under the agreement, which also requires the approval of creditor committees, the Mexican retailer will issue various tranches of new MXP and USD debt, with an average maturity of 6.7 years. It consists of MXP16.32bn in fixed-rate debt paying 9.25% and floating-rate debt paying TIIE plus 275bp-400bp, as well as $226.3m in 7% dollar bonds. The deal also includes a cash payment of $45m on closing, and a lock-up fee for certain bondholders equivalent to 1 percentage point of principal amount held. The agreement excludes MXP1.5bn in domestic bonds recently swapped for new 7-year notes, and the new debt is backed by the company’s real estate holdings and stock. Comerci defaulted in 2008 after severe derivatives losses.

Mexico’s Metrofinanciera says a Nuevo Leon court has approved its pre-packaged bankruptcy plan. “In the coming days, Metrofinanciera will start the process to exchange securities in the period and terms outlined in the bankruptcy agreement, giving way to the creation of a new shareholder structure,” the lender says in a filing on the bolsa. Metrofinanciera is one of the first companies in Mexico to restructure under the concurso mercantil bankruptcy laws. Metrofinanciera is being advised by Bank of America Merrill Lynch.

Cemex has already amended last year’s $15bn restructuring twice to help better manage liquidity and refinancing risk, and it is likely to do so again to reduce the spread on 2013 and 2014 maturities. “We need to renegotiate terms that are better for the company, and likely we will be doing that,” Cemex CFO Rodrigo Trevino tells LatinFinance. He adds that there will also probably be some early debt payments. “Because we expect to continue to generate free cash from now until then, we’re likely going to be prepaying that, in the course of this year and next,” says the CFO. Cemex has no bonds maturing in international capital markets in the short term, and says certificados bursatiles due in November 2010, March 2011 and November 2011 are all covered with cash on hand. “We have a year-and-a-half of free cash that we will generate to meet that,” says Trevino. The next maturity with international banks is June 2012. “We’ve taken care of maturities before 2013 with free cash and cash on hand,” says the CFO. “The good news is we don’t have to issue more debt, we don’t think we need to refinance more debt. We can just dedicate ourselves to paying the debt coming due in the next 3 years and then improving the ratios, so that the rating improves so we can negotiate better terms,” says Trevino.