Suramericana Takes Hit on S&P Watch

Grupo de Inversiones Suramericana’s new 5.7% 2021 bonds took a hit Wednesday when S&P placed its BBB minus rating on creditwatch negative following the Colombian conglomerate’s move earlier this week to acquire some of ING’s Latin American assets for $3.8bn. The bond slipped a good point in secondary market trading to close Wednesday at around 99.375-99.750 after opening around 100.50-101.00. “I think it was a bit of an overreaction initially,” says one trader. “The move was precautionary and depends on whether the company degrades its ratios too much.” Some analysts had already taken note of what they thought was a high price for the Dutch company’s insurance and financial assets in Chile, Mexico, Peru, Uruguay, and Colombia. According to S&P, Gruposura is expected to pay for the acquisition through cash, which includes proceeds raised when the company issued the 2021s in May, as well as financing from international investment funds. “We believe that the incremental indebtedness derived from the transaction could potentially weaken the company’s credit profile. Our previous expectation was that the company would maintain a net debt-to-operating cash flow ratio at less than 1.0x,” the agency said. S&P said it is awaiting completion of the acquisition and more clarity on financing before taking further action. The 2021 issue generated some $4.7bn in demand when it first priced in May at 99.354 to yield 5.786%, or UST+ 260bp, the tight end of UST plus 265bp plus/minus 5bp guidance. Bank of America Merrill Lynch and JP Morgan acted as leads.