Category: Corporate & Sovereign Strategy

Fitch and Moody’s have downgraded Arantes’ ratings after the company filed for bankruptcy as it is unable to rollover short term lines of credit or meet financial obligations created by derivative losses of about BRL230m. Moody’s chopped Arantes’ corporate family rating and guaranteed foreign-currency debt ratings to Ca from Caa1. Fitch cut its local and foreign currency IDR to D from CC. Brazilian beef exporter Arantes on December 19 missed a scheduled $8m interest payment of its $150m senior unsecured notes due 2013.

Cemex, which sought to wrap up a restructuring of around $5bn in short term loan maturities in December, is hoping for more commitment letters from lenders and may take several weeks to close the process, say people close to the company. Syndications officials away from Cemex’s lead group say banks would have been keener to participate if the company had offered a juicier return, and cite this as a likely cause for delay. Still, the Mexican cement maker – until last year one of the bank market’s favorite clients – has had some success in securing commitments to extend a substantial part of its loans, which include a $3bn portion of its Rinker acquisition facility and several bilaterals. For the Rinker deal, of which $3bn matures in December 2009, Cemex says it received commitments worth $1.5bn to extend until December 2010. It had been targeting $1.5bn-$2.0bn and Cemex offered lenders an amendment fee of 50bp to permit the extension. For those who agreed to participate, an additional commitment fee of 60bp was added to the 45bp margin the deal already offered. In total, that brought the 2009 return on the facility to 155bp. The all in payment for 2010 steps up to 200bp, according to bankers on the transaction, though company officials claim the figure is marginally lower. Cemex also wants to refinance $2.7bn in bilats – $900m in Cemex holdco loans and $1.8bn at Cemex Espana – and has secured $2.2bn in commitments for extension. Rates on the bilaterals are heard being bumped up to 200bp-300bp. Prior to the refinance, Cemex’s run rate on all loans stood at around 30bp-50bp over Libor through last year, according to company officials. In Q1 2008, Cemex’s Ebitda jumped to 3.7x from 1.2x a year prior, which coincided with a downturn in the company’s revenues as the real estate and construction sectors softened. In 2007, it paid $14bn for Rinker. Cemex aims to close the refinance by the end of February. BBVA, Citi, HSBC, RBS and Santander are leading the deal.

Money coming from the nationalization of pension funds, which Goldman Sachs estimates at ARP1bn, provides some relief to Argentina and may help it avoid a default in 2009, but concerns remain as the economy enters a technical recession. Goldman notes that although the government says revenue grew 20.5% year-on-year in December, the growth rate was actually “almost nil” after excluding the impact of inflation and nationalization of the pension funds. Morgan Stanley adds that revenue growth was still “far below the full year’s 35.8% average growth” and that “risks to the financial anchor are rising.” “With activity fading, commodity prices falling, financing needs growing and credit markets closed, concerns about the country’s ability to pay will continue,” Merrill Lynch says, noting however that it does not expect Argentina to default in 2009. It adds that the “medium-term outlook remains increasingly uncertain” as a downside bias dominates regarding activity, credit and the global economy. The shop expects negative trends such as weak commodity prices, capital flight and decreasing consumer confidence to cause growth to drop to 1.6% in 2009 from 6.3% in 2008.

Fitch has cut the foreign and local currency ratings of Argentine gas utility Transportadora de Gas del Norte to D from C. The action follows the December 23 announcement that TGN would miss year-end debt payments estimated at $22.1m, as currency slides play havoc with Argentine corporate dollar debt. The company plans to initiate a debt restructuring process for all of its approximately $345m in outstanding debt. The government announced that it will undertake a complete audit of the company, an intervention that adds further uncertainty to the company’s service contracts, Fitch says. The agency has also lowered the recovery rating on TGN’s 2012 bonds to 5 from 4, indicating a likely recovery of 11%-30% of current principal and related interest.

Fitch has downgraded the rating on Cap Cana’s $250m senior secured notes due 2013 to CC/RR4 from CCC/RR4 and keeps them on watch negative following an announcement of an expected restructuring of the bonds. Cap Cana is offering three different restructuring alternatives: an offer to repurchase up to $100m at 33.4 cents plus accrued interest; an exchanged note with an expected 2-year maturity extension along with an increased collateral package and an increased coupon; or an exchange for certificates of a liquidating trust where holders will be repaid through the sale of certain Cap Cana properties. Cap Cana is a 30,000 acre luxury, second-home real estate project under development and is located on the easternmost tip of the Dominican Republic.

Moody’s sees resilience at CAF, despite exposure to Ecuador, which has defaulted. “The recent and historical experience, both in Ecuador and other CAF member countries, supports the view that CAF is unlikely to be caught up in any government default,” said Moody’s VP Gabriel Torres. The agency cites comments from the president suggesting it will pay back many of its loans despite the default. Correa also apparently wants to seek new financing from multilateral lenders, including CAF. Ecuador is one of CAF’s biggest borrowers, and S&P last week changed its outlook to negative on the multilateral because of exposure to the sovereign. “While the government stance could change in the future we see no evidence of such change today,” says Torres. CAF’s status as lender of last resort in times of crisis continues to support its A1 rating, despite the low ratings of its member countries, adds the analyst. “Ecuador, and other member nations, have repeatedly shown throughout CAF’s history that they place debt payable to CAF as senior to almost all its other external obligations,” says Torres, adding that examples are numerous and span several major crises. Ecuador made a $7.35m payment to CAF Monday for a social investment loan, says Dow Jones, which cites a presidential palace statement.

Argentina’s Transportadora de Gas del Norte (TGN) may default by the end of the year, according to Fitch, which cut the credit to C from CCC and senior unsecured notes due 2012 to CC from CCC, keeping all ratings on negative watch. The agency also predicts recovery of 11%-30% in the event of default. “The rating downgrades reflect Fitch’s expectation that TGN will miss principal and interest payments over the near term, and potentially debt payments due as soon as December 31, 2008 despite sufficient cash on hand,” says Fitch. “The company’s precarious financial difficulties stem from deterioration in TGN’s cashflow after one of its export transportation customers stopped paying earlier this year; continued curtailments of natural gas exports by the Argentine government further heightens the potential for additional export revenue losses,” it adds. The next interest and principal payments due December 31 are $15.8m and $6.3m, respectively, says Fitch, adding that for issuers in the C rating category, default is deemed to be imminent. As of September, TGN’s total debt was $345m, composed of $141m amortizing notes at 6.5% step-up due in 2012, and $204m bullets at 7.5% step-up due in 2012. Debt restructuring was completed in late August 2006, adds Fitch. TGN’s 6.5% of 2012 and 8% of 2012 were bid at 42 and 37, respectively, last week, according to Credit Suisse.

S&P has slapped a negative outlook on CAF’s A+/A-1 rating amid concerns about exposure to Ecuador, which is in default, as well as Venezuela and Argentina. “We revised the outlook to negative because the credit risk embedded in CAF’s portfolio rose sharply following Ecuador’s decision to default on its bonded debt,” says S&P credit analyst Lisa Schineller. Lending to Ecuador’s public and private sectors constitutes CAF’s single largest country exposure, at 20.8% of the multilateral’s loan portfolio and 46.3% of shareholder equity as of September 30, says S&P. Embedded credit risk has also risen with the revision of S&P’s outlook on Venezuela to negative (14.8% of CAF’s loan portfolio, 32.9% of equity) and lowering of Argentina to B minus from B (4.9% of CAF’s loan portfolio, 10.8% equity). “The ratings on CAF continue to incorporate our expectation that CAF’s debtors will treat it as a preferred creditor,” says Schineller. “In particular, we assume that Ecuador will remain current on its payments to CAF, as CAF could be the country’s only source of external financing,” she adds. Nonetheless, risk embedded in CAF’s core lending portfolio has increased, as it continues to lend to Ecuador during what S&P expects will be a period of pronounced macroeconomic stress. “We could lower the A+ long-term and A-1 short-term ratings on CAF if Ecuador were to run arrears with the bank,” says Schineller. “We would also consider a downgrade if the ratings on one or more of CAF’s other large borrowers are lowered or if CAF’s currently strong financial profile weakens materially,” she adds. CAF is among the region’s highest rated borrowers and typically leads the way back for issuers when markets slam shut. The multilateral earlier this week tapped the COP market.