Market Toasts Gruma Derivatives Pact

Investors and restructuring experts are cheering Gruma’s announcement that it has reached a tentative agreement with derivatives counterparties. The Mexican tortilla and flour maker plans to pay Credit Suisse, Deutsche Bank and JPMorgan a total of $668m to settle the trade. The amount represents 87% of what the company owes the banks, and is being converted into a 7.5-year loan at Libor plus 287.5bp in the first 3 years. “They are the first company in Mexico to reach an agreement of this nature,” says James Harper, director of corporate research at BCP Securities. “This is also positive for Gruma’s other creditors,” he adds. Harper notes that the company’s only bond – a 7.75% coupon perpetual – saw bids shoot up to around 50 on Tuesday, from low 30s earlier in the week, with no offers. Gruma shares jumped to MXP6.75 in the session, up 21% versus Monday’s close, making it the day’s biggest mover on the Bolsa. While the company – which says other similar agreements are forthcoming – will assume a substantial amount of new debt, near-term uncertainty about derivatives contracts has been eliminated, says a corporate debt analyst covering the credit. He predicts leverage will rise to 5.1x from 3.1x. “Medium term, the company appears to be fine and it has 7.5 years to pay down the debt,” says the analyst, noting an attractive price on the loan. Indeed, 7.5-year corporate risk at less than 300bp over Libor is almost unheard of in today’s bank market. Added to a 13% haircut for lenders, the workout seems almost favorable to Gruma. However, specifics of fees and other structural details are uncertain, complicating the assessment. Gruma expects to finalize an agreement with the trio in 120 days. Other Gruma banks include RBS, Barclays, BNP Paribas and Standard Chartered. S&P is keeping Gruma’s B+ rating on negative watch. “The high likelihood that it will negotiate its term loan before the deadline mitigates most of our concerns regarding Gruma’s foreign-exchange derivative e