Minas Clinches International Debt

An entity linked to the state of Minas Gerais has priced $1.27bn in new 2028 pass-through notes, giving international investors scarce access to Brazilian state-level debt. The issuer got $3bn in orders for the securities backed by interest payments on a loan – a structure seen as replicable by other states. The BBB/Baa3 notes priced at 109.18 with a 5.333% coupon to yield 4.216%, or UST+230bp, at the tight end of 230bp-240bp guidance that followed 250bp-area initial talk. “We got a premium over the Brazil sovereign and some premium for illiquidity and structure of the notes,” says a participating New York-based portfolio manager. Brazil has been trading inside of 100bp. Guaranteed by the federal government, the notes have a 5.33% $1.27bn loan from bookrunner Credit Suisse to Minas Gerais as the underlying asset. In the deal, the loan is sold to the Brazil Minas SPE special purpose vehicle that in turn issues the pass-through notes, which feature a 10.2-year average life. “This is interesting transaction as it gives investors access to state-level risk and indirectly to the federal government,” Juan de Mollein, managing director at S&P, tells LatinFinance. De Mollein adds the RegS-only format could be a future source of financing for other Brazilian states as some banks are looking to offer similar structures. Mato Grosso and Santa Catarina have similar international loans, and Parana is in the process of finalizing a BRL1.1bn ($550m) loan, also from Credit Suisse. More are expected on the way. Credit Suisse and JPMorgan managed Friday’s transaction for Minas SPE. The state’s previous international debt was an $85m loan in 1984, according to Dealogic data.