Javer Flunks High-Yield Test

In stark contrast to Brazil’s blowout $500m 2037 tap, a new $180m 5-year bond from Mexican homebuilder Javer was heard trading down 1.0-1.5 points after pricing Thursday. “It could end up being a Homex, or it could end up being a Desmet,” says a west coast-based EM investor who passed – referring to a performing comp and a defaulted Mexican homebuilder – but was eyeing the bonds in secondary. Other EM assets were generally firmer in the session, helped by a rally in core markets and surge in commodities. The deal was the first true LatAm high-yield corporate from the recent surge in new issuance, and pays 13%, the highest coupon in years from a regional name. The privately held builder of entry-level and middle-income housing priced the 2014 at par to yield 13%, in line with 13% area guidance. Unlike other recent LatAm supply, which has been hugely oversubscribed, the issue drew about $250m in orders from some 65 accounts, according to bankers on it. Javer was seeking up to $200m. About 15% went to US high-yield investors, following reverse-inquiry after a June non-deal US and London road show, bankers on the deal add. Despite government support stimulating the Mexican homebuilding sector, investors may have been hesitant about an unfamiliar high-yield borrower. Bankers on the deal played down the soft aftermarket, noting that there is little flow in an issue this size. They emphasize the challenge of raising $180m for a first-time Ba3/BB minus issuer. Bank of America-Merrill Lynch and Credit Suisse managed the transaction. Javer also raised last year a $160m 5-year loan at Libor plus 350bp through Credit Suisse. “Javer is in a position to deliver on its growth expectations, though it will see pressure from debt service payments,” says a New York-based LatAm corporate credit analyst who declines to be identified, noting that 13% was a fair price. Proceeds will repay around $39m in holdco Proyectos del Noreste debt via dividend payment and also cover general corporat