Peru’s Interbank and Brazil’s Bradesco are weeks away from landing a combined $250m in DPR issuance. While margins have risen substantially in this market, the region’s top financials are finding they can easily pass on the higher costs to corporate clients, which have few alternatives to accessing dollars. Peru’s Interbank is set to issue $150m across 2 tranches. The deal is split into a $120m 6-year, and a $30m 10-year. A person close to the process estimates the all-in cost for the borrower at the equivalent of around 500bp-600bp over Libor, calculated by using the Peru 5-year CDS and adding 150bp. Deutsche Bank is heard leading, and S&P has assigned a BBB rating to the series, set to be priced as soon as late March. In Brazil, Bradesco is warming up a bilateral placement of $100m in 2015 notes via WestLB. Price discussions there are heard starting from Libor plus 300bp area. S&P rated a similar $500m deal from the bank in December at single A. In Jamaica, NCB was looking to issue $50m via Credit Suisse but had to pull out following a sovereign downgrade. Bankers are eyeing new markets for DPRs, including Chile and Mexico. MT100s are done either on a biltateral basis with an underwriter, or placed with a select group of institutional investors, such as insurance companies and multilaterals.
Category: Structured Finance
Brazil Petrochem Preps ABS, Lands Loan
Brazilian petrochemicals giant Braskem is hoping to put together a new securitization trust this year, CFO Carlos Fadigas tells LatinFinance. The Chemical IV FIDC would be the fifth in a series of Brazilian ABS structures set up by Braskem, which began securitizing receivables in 2000. A new deal would likely be BRL250m in size, with a tenor of 12-18 months. Pricing for the senior and subordinated portions of the deal is still being discussed, says Fadigas. Braskem put out an RFP for the Chemical IV trust last year but was not pleased with the pricing feedback, so it has gone back to the drawing board to reconsider, says Fadigas, who adds that the company is in no hurry to price a deal. The Brazilian FIDC market has been dormant for several months following a surge in spreads that drew many investors out of structured and plain vanilla local bonds and into the local bank note market. The company has not yet chosen banks to lead the securitization, though Santander, Bradesco, Itau and Unibanco have all worked on previous similar deals. Braskem will also this week wrap up a new 4-year loan with state-owned Caixa Economica Federal (CEF), says Fadigas. The facility pays 117.5% of the CDI rate, and CEF will also earn a 25bp fee. In February, the CDI stood at 10.73%, implying a yield of 12.60%.
IDB, PE Fund Go Long Brazil Ethanol
The IDB has apparently taken a long-term view of its investment in CNAA, a major startup in Brazil’s sugar and ethanol sector. Despite a wave of negative news regarding some prominent companies in the sector, including one of CNAA’s main investors and former parent company SantelisaVale, the IDB has signed a long-term commitment. It joins energy private equity (PE) fund Carlyle-Riverstone in extending a $145m 15-year package for the company, many of whose peers are buckling under the weight of debt. The IDB agreed the CNAA loan at Libor plus 450bp last month. It marks a record tenor for the sector, and a rate that is barely above what some large 10-year project financings are now seeking. “It was very good of the IDB to take this long view with us,” a thankful Jair Steola, CNAA’s CFO, tells LatinFinance. Asked if the multilateral should have demanded a higher margin given today’s market, Steola says: “They’re view is probably that the market will eventually return to these levels.” An IDB official says the multilateral, which initiated the process in the first half of 2008, was reassured by Riverstone’s beefy equity commitment to the company following the cancelation of a planned B loan via BNP Paribas last year. Riverstone committed $275m in a 15-year hybrid loan at Libor plus 375bp, which can be converted by CNAA into equity starting in the coming months. The move substantially improves the company’s debt to equity ratio and bolstered the rationale for the IDB 15-year loan, says the multilateral executive. A 15-year tenor in today’s market is an anomaly, and almost makes for an equity-like commitment, says a Brazil-based syndications banker. He adds that there is no chance a commercial loan could be done at such a rate or tenor. BNDES may provide another BRL400m to CNAA, while the IDB may weigh in with an extra $80m for a third sugar mill.
Downgrade Kills Jamaica ABS
NCB’s plans to tap the DPR market for a $50m 7-year final issue appear to have been derailed by Moody’s sovereign downgrade, which took place Wednesday. An executive familiar with the bank’s plans says the deal has been shelved following the rating agency’s move to chop Jamaica to B2 (stable) from B1. With the sovereign at B1, NCB’s DPR would only be able to achieve a maximum rating of Ba2. Had it been issued a week ago, the offering might have achieved Baa3, which complies with program documents that state the DPRs must be investment grade. The deal, to be led by Credit Suisse, might have carried a margin of around 600bp over Libor, and fees of roughly 50bp, says an executive with knowledge of the transaction. NCB is likely to consider alternatives for raising funds.
IDB Lends $450m to Medellin
The IDB has approved a $450m loan that will city-owned Empresas Publicas de Medellin (EPM) complete a cleanup of the Medellin River. The loan is for a 25-year term, with a 6-year grace period, at an interest rate based on Libor. The IDB says the financing will help cover construction of a second wastewater treatment plan. When completed in 2012, it will treat about 85% of all wastewater flowing into the river. EPM built the first treatment plant with financing from a $130m IDB loan in 2001.
IDB Suffers Big Mark-to-Market Loss
The IDB expects to report a net investment loss of approximately $1bn on the portfolio for 2008. “The results were mostly unrealized and were recognized in compliance with mark-to-market accounting rules,” says the multilateral, adding that realized losses were $71m. “The results have not materially affected the Bank’s lending or operational capacity,” it adds. The multilateral says it upped loan and credit guarantee approvals by 18% last year to $11.2bn as the global crisis fueled demand for financing in LatAm and the Caribbean. Disbursements totaled $7.6bn, nearly $500m more than the previous year. Some $7.2bn of total approvals, or 64%, was for projects to improve competitiveness and quality of life. The IDB approved $2.4bn in financing for transportation and communication projects and close to $1.2bn in loans for water and sanitation, one of the IDB’s main initiatives. An additional $3.6bn supported projects in energy, capital markets, tourism and agricultural infrastructure, such as irrigation systems. Meanwhile, $3.3bn went to projects that included components to reduce poverty and enhance social equity. “A key set of projects focused on reducing the impact of rising food prices and the financial crisis through conditional cash transfer programs for the poor,” says the IDB. The remaining $707m financed projects to reform and modernize governments. The Bank supported, among other projects, efforts to improve fiscal management and strengthen financial systems. The IDB plans to strengthen its anti-cyclical role to help LatAm and the Caribbean weather the downturn. For 2009, it expects to have another record year of lending by frontloading approvals for key projects across the region. The IDB says it maintains a liquid investment portfolio that covers on average 18 months of loan disbursements, debt service and other liabilities.
Ashmore, Inverlink to Manage Colombia Fund
Ashmore Investment and Colombian investment bank Inverlink have been picked to manage a $500m infrastructure fund created by the Colombian government, IDB and CAF. Macquarie Capital will join as technical advisor, according to CAF. The consortium was chosen from a group of 5 bidders. The fund will start operations by mid-year, prioritizing investments in sanitation, telecommunications, transport, logistics and energy. IDB and CAF may take a 25% stake in the fund, with the Colombian government and export bank Bancoldex taking the remaining 50%, Carolina Renteria, Colombia’s National Planning Director, tells LatinFinance. Loans to the fund are also under consideration. Renteria says the main goal is to help lure pension fund money to infrastructure and channel liquidity amid the crisis. The fund, a private equity vehicle subject to Colombian laws, seeks to replicate a model that has succeeded in Mexico and is central to the government’s plan to use infrastructure investment to mitigate the impact of global recession. His plan involves spending of $22.0bn this year in more than 100 infrastructure projects, of which $12.5bn is expected from private investors.
SHF Mulls Overseas Issue
Mexico’s Sociedad Hipoteca Federal (SHF) is working on a return to the long-term debt markets, perhaps in the international markets, in order to meet its funding needs. “We are talking with the IDB about a guaranteed product to issue overseas,” says Pedro Guazo, CFO of SHF, adding that the target tenor would be 10-15 years. He adds that SHF will maintain its short-term debt auctions and raise medium-term funding to meet its needs. Guazo says SHF has not tapped the long term markets since 2005. Last year, before the crisis, it obtained a 25-year $2.5bn IDB loan at Libor flat, and a 30-year $1bn World Bank loan, also at Libor flat. Speaking on a panel at LatinFinance’s Cumbre Financiera Mexicana, he says SHF is also aiming to offer mortgage issuers with guarantees for construction bridge loans in the same way it does for RMBS issues, and hopes to have that ready in the next few months.
Crisis Seen Raging for Years
The financial markets crisis could last 1-3 years, according to a survey of more than 100 bankers. The poll, commissioned by the IDB, IIC and Felaban, notes that 2 out of 3 banking sector executives believe the crisis will affect their domestic markets for 1-3 years. Mexican bank executives are somewhat more optimistic than their Central American and South American counterparts. Six out of 10 executives forecast a decrease in the availability of funding for their financial institutions. Other expected effects are a decline in remittances and in trade financing. The survey also finds that bankers anticipate SMEs will face higher rates and stricter lending requirements. However, 9 out of 10 bankers say their institutions remain interested in working with SMEs, providing them services such as working capital loans, credit lines, advice on export deals and payroll and payments management.
Ecuador Claims IDB Will Lend $500m
Ecuador’s economic policy coordinator Diego Borja says his country will borrow $500m from the IDB to help finance its 2009 budget. But IDB officials say only that the multilateral has not approved a facility and is still “evaluating several projects to help the country achieve its development goals.” While a loan is being considered, it has not been vetted by the development bank’s board yet. “We are negotiating energy and transportation infrastructure projects, among others,” says the official, who declines to be named. UBS Pactual says it suspects the facility does not represent net new money for Ecuador, but rather would be used to roll over maturities due this year. The shop also says the government’s estimate of a $1.5bn fiscal deficit is too optimistic, adding that even if Ecuador secures the funds, its balance sheet is likely to reflect tight fiscal accounts for 2009.