Holders of Ecuador’s defaulted 2012 and 2030 bonds await the Correa government’s repurchase offer, which it says it would release before the start of this weekend’s IDB meetings in Medellin. The offer could be a cash transaction in which investors are offered at least a 70% haircut plus past due coupon and accrued interest, Barclays notes in a report. In the case of the Global 2012s the deal would be valued around $40. The shop says details of the offer will depend on how much cash the sovereign has available, and how much it may have already bought back through third parties. Barclays estimates the government could draw from $1.2bn at the central bank and another $1.2bn at the social security institute. Trustee US Bank and law firm Milbank Tweed hope to get holders of Ecuador’s defaulted 2030 to form an ad-hoc committee, following a conference call set for March 31. Ecuadorian brokerage Analytica Securities says that the outcome of that committee could be acceleration of payment of principal on defaulted bonds, for which it would need 25% of holders. However, the shop also notes that the prospects of legal action are unclear at best, and may not be more attractive than accepting a government offer.
Category: Corporate & Sovereign Strategy
Arcos Dorados Starts Takeout Talks
Arcos Dorados the private holdco for the McDonald’s LatAm franchise, has started to discuss ways of extending the maturity on its debt, its CEO tells LatinFinance. “We have started going around to bankers talking about our options, including bonds,” says Woods Staton, Arcos’ main shareholder and CEO. But the executive says Arcos is in no big hurry, and would only press ahead with a bond takeout once markets stabilize. The company secured a $350m 5-year final, 3-year average life loan in Q408 via Santander, Scotia and Bradesco at Libor plus 425bp. “The rate we have now is pretty competitive,” adds Staton. Arcos had previously considered local bond issuance in some of its more liquid markets like Brazil, Mexico and Puerto Rico. But that alternative turned out to be more complicated than simply raising a holdco loan denominated in dollars. Any upcoming bond is likely to involve the banks that led the loan. Arcos is 60% held by a private equity consortium that includes Gavea Investimentos, Capital Group and DLJ South American Partners. Staton says the investor group has no plans to change the shareholder structure, and that all involved have been very happy with the investment so far. An executive at one of the shops agrees, calling Arcos one of his best performing assets. The company says it has since August had to adjust growth forecasts down with the worsening economy. It is considering pushing into new markets where McDonald’s is not yet established, including Jamaica, Trinidad & Tobago, and Bolivia.
Market Toasts Gruma Derivatives Pact
Investors and restructuring experts are cheering Gruma’s announcement that it has reached a tentative agreement with derivatives counterparties. The Mexican tortilla and flour maker plans to pay Credit Suisse, Deutsche Bank and JPMorgan a total of $668m to settle the trade. The amount represents 87% of what the company owes the banks, and is being converted into a 7.5-year loan at Libor plus 287.5bp in the first 3 years. “They are the first company in Mexico to reach an agreement of this nature,” says James Harper, director of corporate research at BCP Securities. “This is also positive for Gruma’s other creditors,” he adds. Harper notes that the company’s only bond – a 7.75% coupon perpetual – saw bids shoot up to around 50 on Tuesday, from low 30s earlier in the week, with no offers. Gruma shares jumped to MXP6.75 in the session, up 21% versus Monday’s close, making it the day’s biggest mover on the Bolsa. While the company – which says other similar agreements are forthcoming – will assume a substantial amount of new debt, near-term uncertainty about derivatives contracts has been eliminated, says a corporate debt analyst covering the credit. He predicts leverage will rise to 5.1x from 3.1x. “Medium term, the company appears to be fine and it has 7.5 years to pay down the debt,” says the analyst, noting an attractive price on the loan. Indeed, 7.5-year corporate risk at less than 300bp over Libor is almost unheard of in today’s bank market. Added to a 13% haircut for lenders, the workout seems almost favorable to Gruma. However, specifics of fees and other structural details are uncertain, complicating the assessment. Gruma expects to finalize an agreement with the trio in 120 days. Other Gruma banks include RBS, Barclays, BNP Paribas and Standard Chartered. S&P is keeping Gruma’s B+ rating on negative watch. “The high likelihood that it will negotiate its term loan before the deadline mitigates most of our concerns regarding Gruma’s foreign-exchange derivative e
Jamaica Not Likely to Default
Fitch believes Jamaica is not likely to default on its debt even though the agency has it on negative outlook. Fitch says that the island, which faces about $250m in external financing needs this year, has been in proactive talks with multilateral banks. It also notes that Jamaica has always shown strong willingness to repay debt, and has never defaulted before. Jamaica has a B rating from Fitch. S&P recently cut the sovereign to B minus from B, and also has it on negative outlook.
Gafisa Expects More Real Estate M&A
Wilson Amaral, CEO of Gafisa, says the coming 3-6 months will see further consolidation in the Brazilian homebuilding sector. “There are many companies out there that have a lot of leverage,” the executive tells LatinFinance. “You will see a lot of arrangements involving companies that won’t be able to push forward,” he adds, noting that cash remains scarce for homebuilders. Gafisa, which is often shown assets for sale or seeking investment, is not looking to make any big strategic moves. “If we look at anything it will be because there’s an opportunity to buy a great asset at a very good price,” says the CEO. Gafisa bought low-income builder Tenda last year, and gated community complex Alphaville in 2006. In the past several months, Abyara and Inpar, both highly levered and cash strapped homebuilders, found buyers to come in at distressed levels. Analysts say those two cases have helped clear the sector of any immediate blowups. One Sao Paulo-based equity analyst notes Klabin Segall is among the country’s more highly levered entities, though the cash position leaves it fairly comfortable medium term. At the end of Q3, Klabin Segall had net-debt-to-book value of 95%, higher than most competitors.
Standard Chartered Taps Brazil CEO
Standard Chartered has named Airton Villafranca CEO and head of origination and client coverage for Brazil. “Brazil is an important market to Standard Chartered due to the scale of its domestic economy and its growing ties with our footprint countries in Asia, Africa and the Middle East,” says David Stileman, Standard’s CEO for the Americas. The bank has a wholesale bank business in Brazil, boosted by the recent acquisition of certain assets and staff from Lehman. Since 2001, Villafranca has been with Santander Banespa in Brazil, most recently as international director, where he was responsible for trade, foreign exchange, structured trade, and correspondent banking. Before that, he was an MD at Chase Brazil, in charge of the financial institutions, sovereigns, and trade finance groups. Brazil is the focus of Standard Chartered’s LatAm push, which is aimed at intermediating flows between Latin America and other EM, especially Asia. It is applying for a banking license in Brazil and expects to get it in the next 6 months. Standard continues to hire in New York to bolster its LatAm sales and trading capabilities.
Ecuador Bondholders Look to Unite
US Bank National Association and law firm Milbank Tweed hope to get holders of Ecuador’s defaulted 2030 to form an ad-hoc committee, following a conference call March 31. Ecuador is expected to reveal in coming weeks a repurchase proposal for its 2030 and 2012 globals, on which it has stopped making interest payments, alleging that the debt was found to be “illegal” and “immoral.” Lazard is advising Ecuador on the buyback. The sovereign has elected to continue paying on its 2015 globals. A Milbank lawyer declines to comment on the issues to be discussed on the call, or what an ad-hoc committee might seek to achieve. Uniting creditors is a challenge in lawsuits against sovereign borrowers, as a majority block is typically needed to take legal action. It is also not certain how much of the 2012 and 2030 issues Ecuador’s government might hold at present. Lawyers on an EMTA panel in New York this month emphasized the difficulty of seeking to attach assets of a foreign sovereign. They say that any legal action would likely come after the sovereign circulates a buyback proposal. US Bank is acting as the trustee.
Ranchers Ride Argentine Beef to Congress
The American Task Force Argentina (ATFA) has recruited the US Cattlemen’s Association (USCA) in its battle to make the delinquent sovereign repay creditors. “Argentina’s debt default created an unfair trade advantage for Argentine growers,” says ATFA executive director Robert Raben. “US agricultural interests, including USCA, should have some protection against Argentine market manipulation,” he adds. USCA delegates last week met members of the US congress, apparently to discuss growing concern about Argentina’s unpaid sovereign debt. “The cattlemen advocated for the re-introduction of JEFSA, a bill first introduced in the 110th Congress, which would bar chronic debtor nations like Argentina that ignore US court judgments for extended periods of time from accessing US capital markets,” says AFTA. “Argentina’s debt is a matter of great importance to the US Cattlemen’s Association because, like many US agricultural interests, we are concerned about the unfair trade advantages it gives Argentine agriculture producers,” says USCA director and trade committee chairman Doug Zalesky. “USCA is greatly concerned that Argentina will continue to trade in US markets. We urge congress to act now to halt the Argentine government’s irresponsible economic practices.”
Colinversiones Revamps Hotels for Possible Sale
Colombia’s Colinversiones is investing $20m to revamp hotel properties with the intention of eventually selling them, CEO Juan Guillermo Londono tells LatinFinance. He adds that the company has been refocusing its investments on the electricity generation business. Colinversiones has majority stakes in Intercontinental Hotel of Medellin, Hotel de Pereira and Las Lomas in Rio Negro. Altogether, these have some 650 rooms, Londono says. “We are in the process of improving these assets and eventually we would like to sell them if we are offered an adequate price,” he explains. Renovations are expected to be finished in May. Proceeds from the potential sale would go to improve and expand Colinversiones’ energy assets and acquire more, Londono says. The company already has some $400m in cash for such purposes, the CEO adds. Colinversiones owns electricity generators Termoflores, Merilectrica, Generar, Flores IV and Hidromontanitas, which together generate 819MW.
Brazil Bankruptcy Spike Predicted
Brazilian bankruptcy filings are set to soar as the country’s corporates are squeezed by a global downturn and gridlocked capital and bank markets, say lawyers specializing in the matter. “I think we’re going to see a large number of companies filing [for bankruptcy] this year,” Ronald Herscovici, a partner at Souza Cescon in Sao Paulo, speaking on the sidelines of a Mayer Brown restructuring conference held last week in New York. He believes that to date, based on anecdotal evidence, 2009 filings have already surpassed the number in 2008. The attorney says the new bankruptcy law in Brazil makes it more attractive for companies to file because it encourages the preservation of the concern, rather than pushing towards asset liquidation, as with the former law. “Also, negotiations with creditors have become much more complicated today [than during the last downturn] because companies now have a much larger number of creditors than they used to,” he adds. Borrowers today have to with deal with various groups of local and international bondholders, offshore and onshore banks, suppliers and other sources of credit, which makes having bilateral discussions cumbersome and inefficient. Other analysts say that derivatives will further complicate the process. A bankruptcy process adds order and transparency to the process, says Hercovisci. Bankruptcy experts predict that the largest number of filings will come from three main sectors in Brazil: sugar and ethanol, meatpacking, and homebuilding. In meatpacking alone, more than four companies, including Independencia, Arantes, Quatro Marcos and Frigoestrela, have already filed for protection from creditors.