Arauco Cracks Corporate Market

In a rare pure corporate deal, Chile’s Celulosa Arauco y Constitucion has sold $500m in 2019 bonds on the back of $2.5bn in demand. The BBB/Baa2/BBB minus rated producer of pulp and wood products priced at 98.910 with a 7.250% coupon to yield 7.406%, or UST+387.5bp, the tight end of UST+400bp area guidance. As with much of the recent heavily subscribed new quasi-sovereign issuance, the bond traded up in the gray, about 2 points according to investors. This suggests that the market is open to non-government backed high-grade credits, especially if they offer sufficient concession.”It offers a pickup over what’s in the market,” notes a New York-based EM-dedicated investor, also noting a relative scarcity of quality Chilean corporates. A banker on the deal puts Arauco’s existing 2015 and 2017s at T+377bp-378bp if interpolated out to a 2019 spot on the curve, suggesting a 10bp premium for the new bond. Bankers away from the deal spot such a premium at 15bp-20bp. “They are getting good terms,” notes one, who sees US-based comp International Paper’s 2019 (rated BBB) trading to yield 8.25%. About 150 accounts formed the book, according to a banker on the deal. JPMorgan led, with BBVA and Santander as passive bookrunners. Proceeds are for general corporate purposes and to repay debt amortizations. Arauco is working to address short-term leverage, among the reasons cited by S&P for a downgrade this month to BBB from BBB+. Arauco, which is owned by conglomerate Copec – in turn controlled by investment firm AntarChile – sold $146m equivalent in 2014 and 2030 bonds on the domestic market in March. It last visited the dollar market in 2005 with a $400m 5.625% of 2015 via JPMorgan. New York DCM bankers say more LatAm corporates could be on the way next week, following an Eletrobras issue today, including a benchmark offer from Petrotrin.