Category: Corporate & Sovereign Strategy

Moody’s has upgraded Merey Sweeny’s outlook to positive from stable and affirmed its Baa2 debt rating after ConocoPhillips notified the agency that it has exercised a call option to buy PDVSA’s 50% Merey stake, which is held through PDV Texas and PDV Sweeny. ConocoPhillips alleges that PDVSA and its subsidiary, PDVSA P&G, have defaulted on certain financial damages owed under long-term crude oil supply agreements. The claimed damages apparently arise from sharply reduced crude deliveries since January 2009 to ConocoPhillips’ Sweeny, Texas refinery. The buyout option on Merey exists under provisions in a transfer agreement put in place when Merey was originally formed in 1999, says Moody’s. However, PDVSA is likely to dispute the transfer. Among other actions, it could call for arbitration to settle the claim, says Moody’s. It adds that the transfer of ownership does not in itself cause ConocoPhillips to guarantee Merey’s debt obligations.

BBVA expects the Colombian government to approve today its proposal to restructure highly indebted government-owned utility Emcali, Andres O’Byrne, the banker on the deal, tells LatinFinance. The bank recommends a spin-off of Emcali’s telecommunications unit and bringing strategic partner to capitalize up to 49% of the new company, O‘Byrne says. It is also proposing that energy unit Termoemcali be capitalized by a strategic partner who could end up with a stake of over 51%, he explains. A decision was originally expected on August 30, according to Superservicios, Colombia’s public services regulator. “After the strategies are approved we will begin pre-qualifying potential investors. We should conclude a deal in four months after the strategy is approved,” O’Byrne says. Emcali has more than COP600bn in debt.

Brazilian beef company JBS is denying press reports that indicate it is interested in acquiring US-based Pilgrim’s Pride, the poultry producer that filed for Chapter 11 bankruptcy last year. “It’s speculation. We are always looking at opportunities, and we see good opportunities for the future, but there is no deal in process with Pilgrim’s Pride,” says a JBS spokesman Wednesday. The Wall Street Journal reports that JBS will announce as soon as next week the acquisition of Texas-based Pilgrim’s Pride, for a price north of $2bn. It does not name any sources. Pilgrim’s Pride’s shares jumped 5.1% Wednesday to close at $5.15. The company has a $381.4m market cap. JBS shares jumped 1.7%, closing at BRL7.73.

Grupo Mexico is moving closer to taking copper miner Asarco as a bankruptcy judge says its offer is better than that of India-based Sterlite Industries. It is now up to a federal district court judge in Brownsville, Texas to make the final decision, expected by the end of November. Grupo Mexico’s plan will contribute $2.2bn in cash to Asarco’s debtors, provide a $280m promissory note, a $200m working capital facility to fund Asarco’s operations after bankruptcy, and a release of Grupo Mexico’s claims against Asarco. Sterlite had offered $2.1bn. An equities analyst at Mexico’s Ixe Grupo Financiero says that because Grupo Mexico is offering to pay cash, it should prevail over Sterlite. However, he explains that the workers’ union’s preference for Sterlite’s bid could tip the scale in the Indian company’s favor. Ixe is keeping its buy recommendation on Grupo Mexico, which closed Tuesday up 13.85% at MXP22.03.

Controladora Comercial Mexicana has reached a debt restructuring agreement with domestic bondholders. It will exchange 5 series of its existing bonds on a 1-for-1 basis with new 7-year floating-rate notes paying interest at the TIIE rate. The new debt will be issued in “as soon as possible,” the retailer says, without providing the total value of the new bonds. While seen as a positive step by the markets, the transaction represents only a small piece of the $1bn-$2bn in liabilities Comerci is seeking to restructure, after defaulting last year when it racked up more than $2bn in derivative losses. It says it continues to negotiate with other groups involved in the restructuring process, which includes foreign creditors and derivative counterparties.

Moody’s has downgraded Metrogas to Caa3 from Caa1 and keeps the Argentine gas distribution utility on negative outlook amid concerns over a continued weak liquidity relative to the debt maturity profile. “Metrogas’ tariffs have remained frozen and inflation continues to erode margins and cash flow generation,” says the agency. “In addition, the peso devaluation has increased the size of its interest payments and upcoming principal payments associated with Metrogas’ dollar denominated debt as the company’s revenues and cash flow are in pesos.” Moody’s says that even if a provisional tariff increase is implemented and alleviates Metrogas’ tight liquidity, cash flow generation for required debt service is still expected to remain weak. “The negative outlook reflects the increased likelihood that Metrogas will need to restructure its debt obligations given the company’s weak liquidity profile, poor internal cash generation relative to internal funding requirements and the lack of a clear strategy to address the debt maturities which begin in 2010,” says Moody’s. Metrogas is controlled by GASA, a holding company that is controlled by BG Energy Holdings (54.7%; A2, stable) and YPF (45.3%; Ba1, stable).

Fitch has moved the ratings of Mexico’s Durango up a notch to CCC from D as the company concluded its debt restructuring. It also assigned a CCC/RR4 rating for its 2016 notes and affirmed and withdrew the CC/RR4 rating on its 2017 notes. As a result of the restructuring Durango’s total debt will drop to $263m from $522m, but Fitch says leverage is still high. Durango generated $21m of Ebitda during 2008, a sharp decline from $95m in 2007 and $114m in 2006. The decline was primarily driven by higher costs for energy and recycled fiber, while prices remained relatively stagnant, Fitch says.