Category: Corporate & Sovereign Strategy

Fitch has downgraded Metrofinanciera to RD from C following the recent announcement that it has defaulted on a coupon payments on local short-term debt. The company is maintaining discussions with creditors on a restructuring plan. Fitch considers that continued and extended support from Mexican development bank SHF is essential to successfully completing a sustainable restructuring. If the company is unable to agree a work out and, in Fitch’s opinion, it is forced to cease business – by entering into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedures – the company’s IDRs would be downgraded to D, the agency says. Metro’s national-scale ratings were in turn downgraded to D (mex) from C (mex). Fitch has also removed the IDRs and national-scale ratings from watch negative.

A Texas bankruptcy court has granted Asarco the right to accept offers to see if it can get a better deal than Sterlite’s $1.7bn. It has until the court approves its reorganization to find a better offer. Asarco has between May 18 and September 30 to solicit creditors’ acceptance of its reorganization plan. “With this extension we do not see a short-term final resolution which could allow legal uncertainties go away from Grupo Mexico’s valuation,” says Mexico research firm Actinver, which has an overweight recommendation on Grupo Mexico stock.

Credit Suisse recommends moving Ecuador debt to neutral from underweight in its model portfolio, following the announcement of a repurchase offer for its defaulted 2012 and 2030 bonds. “It seems that the recent tender offer for Ecuadorian defaulted bonds was put forward with an eye on multilateral donors. If Ecuador secures sufficient participation in the buyback, this may open a possibility for further multilateral lending,” the shop says in a report. Ecuador has agreed this week to $480m in loans from the Latin American Reserve Fund (FLAR), according to local and wire reports citing economy minister Diego Borja. The sovereign unveiled a proposal this week to repurchase the defaulted bonds through a modified Dutch auction until May 15, setting a floor price of 30% of face value. Foreign holders of the 2012s and 2030s have an unappealing choice, Credit Suisse says, with the experience of Argentine holdouts showing that creditors lack effective options to enforce legal judgment. “Many investors may be resigned to participating in the tender offer and accepting the prices not far from the minimum purchase price,” it says.

Troubled Mexican paper maker Durango has wrapped up a swift restructuring that it says reduces leverage by 50%. Holders of $357m in face value of 10.5% coupon notes due 2017 will receive $250m in new step-up bonds paying 6.0% in year 1, 7.0% in years 2-4, and 10.0% in years 5-7. In addition, they get $10m in cash and shares representing 6% of the company’s total capitalization. The bondholder committee, chaired by Gramercy, calculates NPV recovery values of 50.3% and 39.5% at discount rates of 15% and 20%, respectively, including the bond value and cash but without accounting for equity. The remaining $151m of the 2017 notes has apparently been bought up over the past several weeks by entities linked to Durango’s controlling shareholders. This was likely done at a hefty discount to face value – the bonds scraped 14 cents on the dollar in March – and will be converted into equity representing 35% of Durango’s capitalization. This leaves the Rincon family firmly in control of the company. Controlling shareholders acquired outstanding debt and voted on decisions regarding the bonds and intercompany debt to work towards a resolution. “I have some issues with the way the workout was handled,” says Eric Ollom, corporate debt analyst at ING. Still, the fact the default has come to a preliminary resolution within 6 months, and one that implies a recovery of around 40-50 cents on the dollar, is a positive step for Mexico and the region, says the analyst. And bondholders say that after the deal, leverage will be less than 3.5x mid-cycle Ebitda of around $75m, with robust cash interest coverage ratios due to the concessionary coupon rates. “Cash interest totals $7.6m in year 1 and tops out at $27.1m in years 5 through 7, half of the $54.6m annual interest bill under the old bonds,” Gramercy partner Robert Rauch tells LatinFinance.

Conclusion of a restructuring by Durango, the Mexican paper company, just 6 months after filing for bankruptcy is viewed as broadly positive. “We think it is a fair deal for creditors and believe the company will benefit greatly from the deleveraging achieved,” Robert Rauch, partner at Gramercy, which led the bondholder committee, tells LatinFinance. Durango emerged from its second default in 6 years close after agreeing preliminary terms with holders of its 2017 bonds, of which $520m were issued in 2007 via Merrill Lynch. While the workout process leaves much to be desired, a relatively fast resolution that implies a potential recovery value of 40-50 cents on the dollar is an encouraging sign for LatAm distressed debt, says ING corporate debt analyst Eric Ollom. “This shows that recovery values in LatAm should be higher than in the US because the leverage [in the region] is much lower,” says Ollom. Durango’s proposal involves a major haircut to par holders, but a substantial lift to anyone who bought in over the past several weeks, says Ollom. The notes traded as low as 14 cents on the dollar in early march, according to one high-yield broker. They jumped to around 32-34 Wednesday, from 27-29 Tuesday, according sellside and buyside shops. Durango’s resolution, alongside Gruma’s recent announcement of a deal with derivatives counterparties, can be read as an encouraging sign for cases like Vitro, Comerci, Sadia and even Arantes and Independencia, which are still restructuring their liabilities, says the analyst.

Ecuador has delivered a long awaited proposal to repurchase its defaulted 2012 and 2030 bonds. Its finance ministry has set a floor price of 30% of face value, it says, and will take bids in a modified Dutch auction until May 15 and plans to announce results on or around May 26. The government is not obligated to buy anything, it says, and reserves the right to extend either of those dates as it sees fit. “It is a skillful maneuver – Ecuador is not committing to too many things, it is buying time, and is getting valuable information,” Ramiro Crespo, president of Analytica Securities tells LatinFinance. He adds that the auction gives the sovereign an opportunity to see what holders have, and plot strategy accordingly. There is some $3.2bn outstanding in the 2012 and 2030 bonds, though Ecuador is rumored to have been repurchasing via intermediaries since November. “We think the tender rate will be higher among investors than in the Argentina restructuring and that the participation threshold will also likely be relatively high, given that the government already likely controls the decision of a fair amount of the outstanding claims,” Bulltick says in a report. Argentine participation was slightly above 75%. Bulltick, which had anticipated a swap or much lower price on the buyback, sounded encouraged. “The offer comes better than we had expected,” says the boutique. It was not immediately clear if the government’s proposal raises expectations for legal action on the part of holders. Capital Markets Financial Services is in the process of organizing a committee, according to an official at the Miami-based financial services boutique, declining to give further details. Law firm Milbank Tweed is also organizing holders, following a conference call in March. Milbank attorneys did not return requests for comment regarding their plans.