Category: M&A

Moody’s has placed Brazilian meat producer JBS under review for possible downgrade, following concerns about the company’s fast-paced acquisition strategy while it straightens out the operations of Swift, which it acquired in July. “Continued low operating margins at Swift may make it a challenge for JBS to maintain consolidated retained cash flow to net debt above 10%, which is the level that we consider necessary for the current rating category,” says Moody’s. The agency is also concerned that a recently announced partnership with Cremonini will further strain JBS management’s capacity control operating performance at its multiple international operations. JBS has a B1 rating.

Chilean retailer Cencosud will launch Tuesday syndication of a $480m 5-year amortizing loan whose proceeds will pay for the acquisition of Brazilian grocery chain G. Barbosa. Santander is leading the highly sought after transaction, which already counts on BBVA and BNP as bookrunners. The financing is being launched very late in the year, though bankers close to the process say this is part of a strategy to get in ahead of the January rush. A glut of loan financing is expected in as poor credit conditions have created a large backlog and corporates, aware of the possibility of rising borrowing costs, try to lock in financing while margins are still attractive. As a result Cencosud will try to sign up MLAs early on and wrap up the financing in January, when other deals may just be getting off the ground. Cencosud will hold its bank meeting at the Park Meridien Hotel in Manhattan.

Colombian state-owned power company EEB has received a $100m loan from CAF to complete the financing of its acquisition of the Ecogas network. Terms of the loan were not disclosed. EEB won a 2006 auction to buy Ecogas for $1.46bn and financed the purchase with short-term syndicated loans later replaced with $750m and $610m bond sales, but was still short $100m. In a separate transaction, City of Bogota received $55m in CAF loans for road improvement.

S&P has upgraded Brazil-based petrochemical company Braskem to BB+ (stable) from BB and taken it off CreditWatch. The rating action reflects Braskem’s improved business profile, resulting from both the acquisition of the control of strategic assets in the Triunfo Petrochemical Complex and a recently announced pact with Petrobras. S&P also notes Braskem’s leading market position in Brazil, pointing toward margin improvement and reduction in credit measures volatility in the future. Constraints include exposure to volatile input costs (mainly naphtha), as well as to working capital swings; reliance on the home market for EBITDA and increasing competition from large local players.

Colombian holding company Colinversiones has bought the Central Termoelectrica Las Flores natural gas-fired power plant for $320m from a group of Colombian investors. It is financing the acquisition with a $300m bank loan. Colinversiones plans to invest $150m in the 447MW plant in Barranquilla to boost its capacity to 610MW.

An Argentine private equity group led by the Eskenazi family is offering what some see as attractive pricing on a $2bn 3.5-year loan to support the acquisition of 25% of YPF, the Argentine subsidiary of Spain’s Repsol YPF. At a well attended bank meeting last week in Madrid, the group told bank participants they could expect to receive 200bp over Argentina’s 3-year CDS, according to a banker who attended. On Monday, the basis was quoted at 380bp-395bp over Libor. An up-front fee of 125bp is also included. Repsol assured prospective participants it would remain closely involved with YPF, and that its engineers and oil and gas experts would remain in control of the technical aspects of the company. The new investors, who today operate among other things a bank, would be involved in the financial and administrative management of the assets. The loan is also heard to be secured by shares and some of the assets themselves, providing needed comfort to banks venturing into Argentina. A $2bn seller’s note is also part of the total $4bn financing package. Credit Suisse is the global coordinator, with BNP Paribas and Morgan Stanley as bookrunners.

An Argentine private equity group led by the Eskenazi family is offering what some see as attractive pricing on a $2bn 3.5-year loan to support the acquisition of 25% of YPF, the Argentine subsidiary of Spain’s Repsol YPF. At a well attended bank meeting last week in Madrid, the group told bank participants they could expect to receive 200bp over Argentina’s 3-year CDS, according to a banker who attended. On Monday, the basis was quoted at 380bp-395bp over Libor. An up-front fee of 125bp is also included. Repsol assured prospective participants it would remain closely involved with YPF, and that its engineers and oil and gas experts would remain in control of the technical aspects of the company. The new investors, who today operate among other things a bank, would be involved in the financial and administrative management of the assets. The loan is also heard to be secured by shares and some of the assets themselves, providing needed comfort to banks venturing into Argentina. A $2bn seller’s note is also part of the total $4bn financing package. Credit Suisse is the global coordinator, with BNP Paribas and Morgan Stanley as bookrunners.

UBS has upgraded CVRD stock to buy from neutral after the equity market correction. “The stock is 17% below its recent high price of $37.75/share (RIO), and we believe M&A activity potential has improved our iron ore price long-term view, which is positive for CVRD,” says the shop. “Also, while some of the concerns we had about CVRD in early October remain, we believe the recent price correction has discounted a higher risk outlook in the short-term,” it adds. UBS also raised its earnings estimates for 2009 by 13% on iron ore. However, it warns that short-term dynamics may be negative due to potentially lower than expected 2008 iron ore price increases. It prefers CVRD to Bradespar, which it rates neutral. “Bradespar remains a way to gain CVRD exposure, although we do not see relative outperformance between CVRD ONs and Bradespar,” says UBS. “We reinforce our view that Bradespar is unlikely to see CVRD-related M&A activity in the next 12 months, and hence should not trade at a premium,” it adds.