Category: Regions

Meanwhile in Mexico, mutual funds and large private investor pools are developing an appetite for leveraged local currency bond deals, which could bode well for the numerous private equity firms scouting the domestic landscape for deals. “You can find financing for transactions today on better terms than you could a year ago,” says Miguel Valenzuela, of the Carlyle Group in Mexico. “In principle, our banks tell us there seems to be an appetite for deals with leverage levels of 2.5x-3.5x,” he adds. In the coming several months, investors that have warmed up to local Sofol issuances may find themselves being offered LBO paper from companies being bought by firms such as Southern Cross, GP Investments, Advent International and Carlyle.

Mexican state utility Comision Federal de Electricidad (CFE) has priced MXP1.2bn in local floating-rate 2017 bonds at 30bp over Cetes. Proceeds fund investments in various projects. The offering is rated Aaa.mx by Moody’s and managed by Deutsche Bank. Separately, Toyota Financial Services priced MXP1bn in 2012 local bonds with an 8.5% coupon to yield 48bp over Mexican treasuries. Demand for the AAA.mex offering led by Santander and HSBC surpassed MXP2bn, and it was allocated to Mexico-based institutional investors.

The municipality of Atizapan de Zaragoza in the State of Mexico has secured a 15-year loan of up to MXP430m from Scotiabank Inverlat to finance infrastructure projects, according to Moody’s, which rates it Aa2.mx/Baa2. The municipality of Atizapan de Zaragoza has pledged the rights to 30% of its federal participation revenues as source of payment for all obligations in the trust. This amount is transferred by the state government directly into the trust under irrevocable instructions issued by the municipality. The spread over TIIE is on a ratings grid and the maximum interest rate is 9.5% over the life of the loan. Moody’s also notes that Atizapan de Zaragoza has sizable borrowing plans, putting debt indicators among the highest for municipalities in Mexico rated by Moody’s. The transaction includes a reserve fund which, according to the agency’s projections – under severe stress scenarios – never drops below 3.7x monthly debt service.

Carlyle Group’s Mexican buyouts team has completed what it says is the first portfolio divestiture in Mexico, selling Hispanic Teleservices Corporation (HTC) to larger French competitor Teleperformance. “HTC was an LBO that also had a growth component. This is the type of deal we’re looking at in Mexico,” Miguel Valenzuela, a director at Carlyle in Mexico, tells LatinFinance. The original purchase in 2005 was financed with a bilateral loan from Scotiabank, which resulted in a total leverage level of around 2.1x. Carlyle’s Mexico group looks to invest $10m-$15m in equity per deal. It is drawing from a $134m fund, of which roughly $84m has already been spent across three deals so far, including HTC, cosmetics company Arabela, and a university. While Carlyle would not disclose the price at which it bought and sold HTC, Valenzuela says he expects the firm’s investors to be very pleased with the return.

Grupo Kuo, the Mexican manufacturing conglomerate, is raising $225m in a dual tranche loan financing via Citi which is expected to close in January. It includes a $175m 5-year amortizing senior term loan and a $50m revolver. The transaction pays 125bp out of the box, on a leverage grid, according to a banker familiar with the terms. At 3.0x leverage it pays Libor plus 125bp, 87.5bp for 2.5x-3.0x, 70bp for 2.0x-2.5x, and 50bp at below 2.0x. The new facility starts amortizing in year three, according to another banker familiar with the terms. Kuo enters a rough market for syndications as lenders turn more selective and raise margins while their own cost of funds rises. Leveraged loans in particular are under pressure, though loans specialists say deals can still get done if structured properly. Kuo is refinancing debt that has been sitting on its balance sheet for some years. In October, it paid down some of that with a $200m issue of 9.75% 2017 notes via Citi and Credit Suisse. Kuo was previously called DESC.

Mexican telecom Maxcom has offered to exchange up to $200m of its 11% 2014 bonds for similar notes that that lack the original’s transfer restrictions and registration rights. There is no premium payment offered in the tender expiring December 18. Deutsche Bank is exchange agent.

Volumes of Mexican debt securities, Latin America’s most frequently traded instruments, fell in the third quarter to $339bn, according to EMTA. This represents a 16% decline from $403bn in the same period last year and a 9% drop from $373bn in the second quarter. Brazil finished second with $314bn, equal to last year’s Q3 total and up 4% from Q2. Argentina came in third, at $146bn. Mexico’s market share dropped to 20%, just above Brazil’s 19%. Globally, trading in emerging market debt reached $1.68trn in Q3, down 4% from $1.75trn in Q2. Given the turbulence in the markets, the fourth quarter is expected to be even softer. “It should be a pretty quiet fourth quarter close” for LatAm bonds, Siobhan Morden, local markets strategist at ABN AMRO, tells LatinFinance.