Cielo Makes DCM Debut

Brazilian credit card payment processor Cielo has raised $875m in the debt capital markets, in a sale that saw the low yield and high demand that has become commonplace this year among LatAm’s blue chip issuers. Orders for the 2022 bond were heard reaching $6.5bn, with investors drawn to a BBB+/Baa2 rating, strong market share, and part ownership by Banco do Brasil (28.65%) and Bradesco (28.65%), to generate interest at initial mid UST+200bp-area whispers, before bringing pricing to a final UST+225bp. “This is a consumption growth story with strong share ownership by Banco do Brasil and Bradesco and minimum credit card risk. Cielo is growing quickly and has a huge market share and growth potential,” says a participating London-based portfolio manager. The senior unsecured bond priced at 99.316 with a 3.750% coupon to yield 3.833%, or UST+225bp, the tight end of UST+235bp (+/-10bp) guidance. The bonds were trading flat to up 0.05 in the grey late Friday, according to investors. While difficult to comp – closest peer Redecard does not have outstanding dollar debt – investors looked at shareholder Banco do Brasil’s 3.875% 2022 senior unsecured bonds as a reference point. “Cielo has declining margins and whatever they are doing now is to protect their market share,” says a London-based investor who found the UST+225bp level too tight. Another concern for some investors was Cielo’s dividend policy, at a minimum of 50% of net income, with Cielo seen distributing dividends of about 70% of net income in 2011. While changes in the competitive landscape since July 2010 have pressured Cielo’s adjusted EBITDA margin – 63.5% as of September, from 67.2% in 2010 – margins are still attractive and should remain around 63% in the near term, according to a credit analyst following the issuer. Cielo’s estimated market share is 55%, and along with Redecard the two account for more than 95%. With smaller players like Santander’s GetNet entering the market among others expected to take 1