Category: Corporate & Sovereign Strategy

Italian retail holders of some $4.5bn in nominal value of defaulted Argentine debt have not yet been approached by the debtor, but they will not accept the offer in its rumored form. “This is mostly for institutional investors,” says Nicola Stock, president of Task Force Argentina, which represents 190,000 Italian holders, many of them pensioners, with $4.5bn in bonds. “The offer is less attractive than the 2005 offer. It is absolutely not interesting for the retail bondholders,” Stock tells LatinFinance. The deal is expected to involve a 66% haircut in exchange for discount bonds – no pars or quasi pars – and zero PDI. Interest from 2005 to the present would also be paid in discounts. Participants are also being asked to pay 25% of their eligible amount in cash up front to Argentina to get 10-year bonds with a 7%-8% coupon. Some $2.5bn in cash is expected to be used by the sovereign in the exchange. “[Retail] bought at the nominal value, so of course for them it is really unattractive,” says Stock. The official says he has not yet been approached by the sovereign or its bankers – Barclays, Deutsche and Citi. According to Stock, the Italian retail claim including PDI is worth more than $6.5bn. The official says hedge funds that bought in the 20s would very likely take the new deal, since they would make a substantial profit. He alleges that some of the banks involved in the swap also have exposure. “They are also very happy to do it, and taking positions,” says Stock. The Italians are pursuing their claim through ICSID, where the group seeks full payment of principal and PDI. Stock anticipates news on that in 2009. Creditors’ main gripe is that the sovereign shunned real negotiations. “We are going further in this battle against Argentina. We never had a chance to talk seriously with them,” Stock adds. Argentine officials say that the holdouts offer is still being analyzed and they decline to provide specific details. The final transaction could end up with differen

Lehman’s Brazil operation, which only recently received central bank permission to operate as bank in Brazil, has not filed for bankruptcy in the country, according to US-based executives at the firm. Financial institutions in Brazil are not subject to a typical bankruptcy process, and any failings are handled by the central bank. Brazil’s central bank has not issued any statement or public information regarding Lehman Brothers’ operation in Brazil. People away from the firm say the bank was in its earliest stages of operations, and likely had few, if any, local creditors. Lehman Brazil employees are understood to be continuing their routine, awaiting further decision regarding the firm’s acquisition by Barclays. Winston Fritsch, head of the Brazil investment banking operation, was not available for comment.

If hostile fundraising conditions persist for LatAm corporates, investor focus will shift to bargains in distressed and defaulting credits. Even if the crisis is severe, however, there may be fewer casualties than at the start of the decade when Argentina went bust, or during the Tequila Crisis. Aaron Holsberg, head of LatAm corporate research at ABN AMRO, notes that the issuer base is much stronger than in past crises, having taken advantage of better times last year to refinance or issue equity. “I expect fewer defaults than in the past,” Holsberg told an EMTA panel in New York this week. “I’d be surprised if this crisis reaches the levels of 2001-2002.” Issuers who can successfully scale back capex and have not used lots of leverage for M&A will fare best, adds Katherine Renfrew, who manages more than $4.5bn in EM debt at TIAA-CREF. She notes that high-grade stalwarts like Vale and CSN have survived shock after shock. Those most at risk, says Jim Harper, director of corporate research at BCP Securities, have large looming maturities coupled with low cash balances – such as Brazil’s Bertin and Mexico’s Industrias Unidas.

Fitch has upgraded the international foreign and local currency issuer default ratings of Chilean bottler Coca-Cola Embonor to BBB from BBB minus, citing continuous improvement in credit metrics during the last five years, as well as its strong business position in Chile and Bolivia. Fitch believes that Embonor’s parent Coca-Cola, which owns 45% in the Chilean bottler, would financially support the company, if needed, to preserve its reputation for supporting bottlers in which it has a significant economic stake. Embonor’s net debt to Ebitda ratio has improved to 1.7x in June 2008 from 4.8x in December 2003, Fitch says. “The improvement is a result of increasing Ebitda levels due to higher sales volume, cost reductions and debt repayments,” it adds. The agency also notes a slight decrease in Embonor’s margins due to cost increases driven by higher concentrate costs and energy costs and political and social risks in Bolivia.