Category: Corporate & Sovereign Strategy

Mexico’s Comerci has postponed the resolution of its derivative debt restructuring to June 10 from May 27. The fourth postponement in the month of May alone suggests that there is still substantial discord between the banks that provided the derivatives and the company on terms of a settlement. However, the absence of a long-term postponement or a decision to settle the process in court indicates some progress is being made. Market watchers see an imminent resolution for the derivatives problem, which will open the way for discussion on defaulted dollar and MXP bonds. “You can’t restructure the debt if you don’t know how much debt you have,” says a corporate analyst specializing in distressed debt. He notes that the gap between what Comerci says it owes and what derivative counterparties claim they are owed is still wide. Barclays notes that banks originally claimed the liability stands at $2.2bn, while Comerci says it is more like $1.1bn. Barclays expects settlement to fall somewhere between the two. However, the outlook for Comerci’s $200m in 6.625% bonds due June 15 is positive. “Based on our assumptions about derivatives liabilities, real estate, and cashflow valuations, we believe that the bonds (indicated at 46) are worth 54-57,” says Barclays. CCM has a portfolio of real estate assets with a book value of $2.4bn that could be monetized to pay creditors, it adds. As such, there is limited downside for the notes, it argues. In a May 11 report, ING said it expects a recovery value of 62.

Ecuador say it has bought defaulted 2012 and 2030 bonds at 35 cents on the dollar, 5 cents above the floor it set last month when announcing the modified Dutch auction to retire the debt. Ecuador does not say how many bonds were repurchased, though analysts expect high participation. There was some $3.2bn outstanding in the two issues before the sovereign started aggressive secondary repurchases via intermediaries last year. “The clearing prices for the bonds reflect the resources of the republic and are responsive to the majority of the offers received,” says finance minister Elsa Viteri in a statement. In addition, holders offering more than that can re-submit at 35 cents until June 3, with settlement June 12. “Our assumption is that the final participation will be quite high (above 90%) for the opportunity of many investors, that do not have the option to litigate, to exit Ecuador debt,” RBS says in a note. The participation rate is likely already 75%-90%, says a veteran LatAm investor who took part, noting that larger investors likely bought the debt cheap and were inclined to sell. He adds that smaller participants are splintered and unlikely to want to pay the costs associated with legal action. Though the government may view the buyback as a success, doubts remain about its ability to access funds in the future, with the possible exception of multilateral lenders. “The credibility of the government has been dramatically damaged by this politically motivated debt default, and we think this will impact Ecuador’s ability to tap the international markets in the future,” says Bulltick.

Mortgage lender Hipotecaria Credito y Casa says that it has defaulted on MXP530.8m worth of debt, blaming the economic crisis. Of the total amount, MXP4.9m belongs to the CREYCA07 notes, MXP521m to the CREYCA 02109 notes and MXP4.8m in interest. The company says it will negotiate with creditors to obtain additional time to meet its payments.

Grupo Mexico has offered $1.6bn for Asarco after a Texas bankruptcy court granted the target to accept offers to rival that of Vedanta subsidiary Sterlite, which in late April bid $1.7bn. Grupo Mexico says its offer is higher that Sterlite’s and that it has the backing of Asarco’s asbestos creditors. Grupo Mexico says that while Sterlite is offering $1.1bn in cash and a “copper note” it values at $200m, its plan is only guaranteed by a credit letter worth $100m. Grupo Mexico’s plan, on the other hand, would place $1.3bn in escrow. Actinver analyst Inigo Cossio agrees that Grupo Mexico’s offer is superior as Sterlite is only planning to acquire Asarco’s assets and not the company itself. It is now up to creditors to decide which offer to accept.

The deadline for holders of Ecuador’s defaulted 2012 and 2030 bonds to submit bids in a buyback auction passed Friday, with investors and analysts expecting strong participation. Attempts at organizing resistance failed to gain traction, a bondholder tells LatinFinance, and the prospect of getting 30-plus cents on the dollar may outweigh the cost and uncertainty of legal action. “Expect a large size participation of around 80%-90%, probably skewed towards 90% on limited amount of holdouts,” says Siobhan Morden, LatAm debt strategist at RBS. That the tender deadline has come and passed without bondholders accelerating the 2030, she says, suggests the holdout percentage is likely low. Morden expects the deal to be weighted towards the minimum clearing price (30) for the core participation of the government bonds with a final price probably close to 32-34. The government plans to announce the results of the buyback on or around May 26. Ecuador’s 2012s and 2030s traded at 30 Friday, according to the Guayaquil bolsa.

PDVSA owes billions of dollars to service providers, but it is not expected to default on bond debt, so agencies are sticking to their ratings. However, corporate analysts and investors say that bond documentation may allow acceleration following missed payments or successful lawsuits above a certain threshold. PDVSA lawyer Shearman Stearling declines to comment on the legal implications. “The fact that PDVSA has outstanding accounts payable with service providers in and of itself will not result in a rating action,” says Fitch managing director Dan Kastholm. Fitch has PDVSA at B+ (stable). “PDVSA is slowing down payments to suppliers to conserve cash, but this is mostly politically motivated because the company does have the cash to make the payments,” says Tom Coleman, an analyst at Moody’s, which rates the issuer B1 (stable). He adds that the company has been timely with bond payments and he does not expect PDVSA to default, but says suppliers will take notice of non-payment to providers, which Venezuela is nationalizing. At the end of 2008, Barclays estimates total debt with contractors and suppliers reached $13.9bn, compared to $6.2bn in September. US contract drilling company Helmerich & Payne says PDVSA owes it $116m, while oil-service company Williams claims the company owes it about $241m. Kastholm says providers still might have a chance of getting paid. “Payables that are outstanding would likely be incorporated in some form during the negotiation of the valuation of these businesses, which are in the process of being nationalized,” he adds. Barclays believes nonpayment of suppliers by PDVSA is likely to be short term in nature, and it is “extremely unlikely” that this would trigger a default event. S&P rates PDVSA BB minus, negative outlook, and does not return calls seeking comment on the credit. Meanwhile, at the sovereign level, Credit Suisse continues to recommend a 0.5% overweight position in Venezuelan debt and does not think nationalization change

It is up to Cemex’s bank lenders to save the company from default, according to analysts. The market assumes the cement giant’s problems with banks – which involves some $15bn in maturing facilities in the coming years – get resolved through renegotiation, because that is the only option that makes sense. “The way forward is pretty clear,” says Eric Ollom, debt analyst at ING, speaking on an EMTA panel Monday. He notes Cemex’s lead banks have no incentive to allow default because they would have to provision for loans, which would mean taking enormous losses. “These are performing loans,” he adds, concluding that, “the market has generally overestimated the risk of default.” Cemex is entangled in complicated discussions with, among others, BBVA and Santander – which have a combined $4.6bn exposure to the company – on how to roll over very near-term maturities. It is still far from discussing how much of the full-year 2009, 2010 and 2011 debt will be able to be rescheduled and on what terms, says a person close to the talks. Alonso Cervera, economist at Credit Suisse, says fear of systemic risk to Mexico’s corporate sector has been overblown, and points to a 10% rise in Cemex ADRs YTD. The corporate sector generally is not in trouble, though some individual companies are, adds Cervera. While Cemex’s relationship bankers privately reveal willingness to help, it is unclear how successful debt talks will end up being. While analysts like Ollom and Cervera see the market betting on an eventual solution, it is unclear what it would look like. There is also concern about the cost of months of further uncertainty. Much of the optimism about finding a solution hinges on scant publicly available information and the firm belief that BBVA and Santander will act rationally. Barclays last week put out a note predicting recovery on senior unsecured debt will be 40%-50% at Cemex SAB and 50%-60% at Cemex Espana.

Argentina’s TGN, which put forth a debt restructuring proposal earlier this week, is likely to be in for a substantial amount of negotiation on the terms of the deal, say investors and bankers away from the process. TGN, whose bonds are quoted trading in mid to low 20s, has offered investors the option to exchange some $347m in 2012 bonds for new 2021 notes paying 2%-6%, or to receive cash at a 75% discount to face value. An investor who claims to be holding a large position says the recovery is around 25%, depending on the exit yield, and wants to see at least another 10 points. “People are shocked at how draconian the proposal is,” says James Harper, director of corporate research at BCP Securities. “We expect push-back.” Harper, some of whose clients include large hedge funds and mutual funds that are holding TGN notes, claims investors were expecting something more palatable. For example, a 7-8 year bond with a coupon of 6%-8% and amortizations starting in the third or fourth year, would be more reasonable, he claims. “It would be well within the company’s ability to service a 7-year bond with a 7% coupon.” Barclays is advising TGN on the restructuring.

Mexican glassmaker Vitro has dumped its financial advisor Blackstone Group and hired Rothschild to replace it. The move is accompanied by a delay in the timing of a restructuring proposal from the company. Vitro was previously expected to deliver a proposal by this month, but executives watching the process say the new deadline has now been pushed until July. Rothschild advised Durango through its most recent restructuring, which was widely applauded as a fast and consensual resolution. A distressed investor away from the process says Vitro tapped Rothschild for its track record and got a commitment from the firm that its lead bankers would be closely involved in the process. Blackstone’s commitment to being involved in the deal is rumored to have been less firm, according to market rumors. Blackstone officials did not immediately return calls seeking comment. “Vitro would . . . like to thank Blackstone Group, with whom it had agreed to implement this change, for the objectives they have achieved thus far, which have allowed the Company to maintain consistent communication with its counterparties as it makes continued progress towards a definitive agreement,” says Vitro in a statement sent to LatinFinance.