Category: Brazil

In a clear sign bondholders are sliding down the credit quality curve in search of yield, a slew of Brazilian protein specialists are lining up to issue debt. Minerva, the B3/B rated meatpacker, is the latest to announce a deal, saying it wants to sell $250m worth of 2020 NC5s. That follows last week’s announcement by BB+/Ba1 rated Brasil Foods of a $500m 2020 tap. Marfrig (B1/B+) is also considering an issue, following investor meetings in December; and Independencia, the meatpacker wallowing in a complex workout, is contemplating a $260m cross border issue in lieu of a DIP facility it previously hoped to raise with funds and banks to help it start up operations, say executives close to the company. “Investors are liquid and have the appetite to look at deals,” says ING corporate debt analyst Diego Torres, adding that generally tighter spreads for Brazilian names versus Mexican ones suggest buysiders have a preference for the issuers from the former. “With the meatpackers, however, there will be a lot of caution because of the recent corporate governance history,” adds Torres, alluding to defaults by Independencia and Arantes, as well as derivatives losses at Brasil Foods unit Sadia. Proceeds from Minerva’s $250m issue, expected later this week, are earmarked for refinancing 2010 and 2011 maturities, say Moody’s and Fitch. The sale’s announcement follows “non-deal” investor meetings last week, with additional marketing taking place this week. Investors expect the Minerva notes to pay in the high-10% to low-11% range. Minerva has been working to fight off concerns about leverage and refinancing risk. In the second half of last year, it raised BRL159m in equity through a private deal whose proceeds were destined for debt repayment. “From a credit perspective, the refinancing of short-term debt would be a positive development, especially if the deal is for pure refinancing purposes,” Barclays says in a report, noting a 7.7x total debt/Ebitda that is the highest of its

The board of Brazilian low-income developer MRV Engenharia has approved the sale of up to BRL400m ($225m) in non-convertible debentures, it says in a regulatory filing. The issue would be done in a single tranche maturing in 2014 and paying 1.6% over DI. Proceeds of the issue will be used to acquire land for new developments, to finance construction of new projects and strengthen the company’s working capital. MRV has developed residential projects in about 75 Brazilian cities. In 2009, the company says, sales totaled BRL2.9bn up from BRL1.5bn the previous year.

Brazilian telecom giant Oi says it is halting its tag-along purchase of shares in Brasil Telecom (BT) because of new information from an audit implying higher provisioning. An audit by BDO Trevisan has discovered that provisioning for legal costs linked to expansion in Brazil is BRL1.29bn higher than expected. This takes the total amount of provisions for this issue to BRL2.54bn, according to Oi. In light of the higher costs, a new share swap ratio must be established to ensure a far exchange to minority holders of BT stock, adds the company. A year ago Telemar clinched its purchase of 61% of BT for BRL5.37bn, which had to be followed by a tag-along offer to minority holders. Oi is made up of Tele Norte Leste, Telemar Norte Leste and Coari.

Banco do Brasil (BdB) launched and priced $1bn in 2015 and 2020 bonds Friday, highlighting continued strong appetite for Brazilian credits, particularly banks. Pricing was in line with official guidance but fell wide of early whispers. The Baa2/BBB minus sale saw over $3bn in demand, according to bankers managing it, with orders about evenly split between the 2 pieces. The $500m 2015 tranche priced at 99.333 with a 4.500% coupon to yield 4.651%, or UST plus 220bp, in line with 220bp area guidance. A $500m 2020 print came at 99.451 with a 6.000% coupon to yield 6.074%, or UST plus 237.5bp, in line with 237.5bp area guidance. Both issues had been whispered tighter earlier in the marketing process – 212bp area for a 5-year and 225bp-area for the 10-year – according to investors. Bankers managing the transaction point to a general repricing in the market between announcement and launch. The new BNDES 2020 widened from UST plus 190bp to 205bp, they say. Investors note that, as with BNDES, a BdB buyer gets a nice pickup to the Brazilian sovereign – seen at 60bp-75bp – for taking what is basically government risk. The issue continues the trend of demand from US high-grade for higher-quality Latin product. “There has been very good crossover bid for Brazilian names this year,” says a banker managing the sale. He notes a large participation in Friday’s transaction. The bonds were both heard trading up about 0.25 points Friday afternoon. Banco do Brasil, Banco Votorantim, Deutsche Bank and JPMorgan managed the sale, BdB’s first since a blowout $1.5bn perpetual in October. Several Brazilian banks are lining up to issue 10-year bonds, according to investors. Bradesco – with Goldman Sachs rumored to be among the banks hired – and Itau are heard next.

Brazil’s CSN, which in mid-December submitted a bid to acquire a controlling stake in Portugal’s Cimpor, claims that a competing offer from Camargo Correa breaks the rules governing takeover offers in Portugal. In a statement to Portugal’s market regulator (CMVM), CSN requests a restoration of “normal functioning of markets,” following what it alleges is a disruption that resulted from Camargo’s claim that its merger proposal offers more. The move suggests CSN is still fully invested in its attempt to acquire control of Cimpor, and that it may alter its bid. CSN’s opening gambit was rejected earlier this month by Cimpor’s board. Elsewhere, the CMVM requested Friday that Camargo clarify whether or not it has made a prior arrangement with Lafarge, a large minority shareholder in Cimpor, to acquire a 17% the French company holds in Cimpor. Rumor of the agreement was reported in a local Portuguese paper and Camargo has apparently denied any agreements with shareholders.

Ricardo Lacerda, the former head of Brazil investment banking at Citi, is growing a new Brazil-focused investment banking and asset management firm, BR Partners. The executive, who left Citi last July, has already hired 4 senior bankers and plans to expand the team to 40 people in the next several months, he adds. The effort will focus solely on Brazil, where Lacerda, a banker who also previously led Goldman Sachs’ local operation, says he can offer clients the greatest amount of expertise. BR Partners was set up in November as a merchant bank focused on advisory, private equity and asset management. Lacerda tells LatinFinance he will announce several new hires in February and March but declines to name existing colleagues. Initially, the effort will focus on PE and advisory, says the banker, noting that becoming a full service shop is a second stage objective. BR Partners expects to receive a broker-dealer license by mid-2010, which will allow it to become active in trading and asset management. “I think this is an incredible opportunity and the timing is very good,” the banker says, noting that he has planned to start his own shop for years. “This is a business based on people, reputation and capital,” he adds. The executive was rumored last year to be among the main candidates to head up UBS’s Brazil business, but he rejects the chatter. “There were a lot of rumors about UBS, including that I was building all of this on their behalf,” says Lacerda. “The truth is I never talked to them,” he adds.

Moody’s has upgraded Magnesita’s ratings to B1 from B2 and changed the outlook to stable from negative. The move reflects reduced leverage during Q4 2009 resulting from BRL350m in equity issuance, which was used to prepay debt. The ratings agency also cites the Brazilian refractory materials producer’s improved operating performance over the past quarters, reflecting increased capacity utilization of the steel industry in Brazil, cost-cutting and synergies from the integration of Germany’s LWB, which it acquired in late 2008. Moody’s anticipates that total adjusted net debt to Ebitda has likely declined to about 5x at 2009 year-end after peaking at about 8x in June 2009. Magnesita got a $475m bilateral loan from JPMorgan last year. Soon after the acquisition closed, Ebitda tanked amid a cyclical and crisis-aggravated industry downturn, causing it to trip leverage covenants.

The World Bank has approved a $190m loan for Brazil and $150m for Peru. The Brazil loan is to improve water supply and sanitation services in Pernambuco. It has a 27.5-year term, a 6.5-year grace period and an interest rate based on Libor. The Peru loan is to help rehabilitate and maintain national highways and has a maturity of 21.5 years, a grace period of 8.5 years and an interest rate based on Libor. The multilateral declines to reveal the spread.

S&P has placed the BB ratings of Brazil’s Camargo Correa on credit watch negative and the CCC ratings of Camargo Correa Cimentos (CCC), its cement unit, on credit watch positive. This follows Camargo’s offer to buy a 15%-25% stake in Portuguese cement maker Cimpor Cimentos and merge with its own cement unit. “Although the transaction will give [Camargo] access to Cimpor’s future dividend stream if successful, the CreditWatch listing reflects downward risk on the ratings due to the uncertainty on the effects of the transaction on [Camargo’s] financial and business profile, as the company will not fully control the cashflows of its cement business,” says S&P analyst Marcelo Schwarz. On the other hand, he adds, the credit watch listing on CCC reflects the potential positive effects on both financial and business profiles. CCC would be part of a stronger and geographically diversified cement group, and would benefit from a stronger position and operating and logistics synergies in the Brazilian cement market.

Brazilian development bank BNDES says it is creating two programs, ProCopa Arenas and ProCopa Turismo, worth close to BRL6bn, to finance sports and tourism projects in preparation for the 2014 World Cup that will take place in Rio de Janeiro. The ProCopa Arenas program will make available BRL4.8bn to finance up to 75% of the construction of stadiums and other urban infrastructure. Each project will have access to loans of up to BRL400m that bear interest rates of TJLP plus the 0.9% BNDES spread plus a borrower-specific credit spread. Tenors can be up to 15 years with 3-year grace periods. The ProCopa Turismo program will make available as much as BRL1.0bn in loans for tourism and environmental-related projects. Loans under this program can have terms of up to 12 years for renovation projects and up to 18 years for the construction of new facilities. Margins will include a fixed-rate base spread that ranges from 6.9%-8.8% plus a credit spread.