In mid-2020, Braskem, was going through a down period in the petrochemicals industry, COVID-19 was ravaging economies worldwide, and the company was dealing with a huge geological incident in Brazil that is likely to cost it significant amounts of money in reparations. The company had also just had its rating downgraded below investment grade by the big agencies.
Despite all that, Braskem decided to go ahead with the placement of $600 mln in 60-year subordinate notes with a structure that is rarely seen in Latin America. The issuance has earned the company the Corporate High Yield Bond of the Year award in 2020.
The operation took place in July, amid efforts by Braskem to improve its leverage ratio. In 2019, due to a general reduction of petrochemical prices, the ratio had boomed to more than 7x EBITDA, a far cry from the 2-2.5x range targeted by the company.
“The hybrid bond was an important element in our strategy,” CFO Pedro Freitas told Latin Finance.
Marina Dalben, Braskem’s head of Corporate Finance, stressed that, although Braskem is a frequent bond issuer in the emerging markets universe, a hybrid bond was a new experience for the company and its usual investors.
The structure was chosen because only half of the amount raised is accounted as debt for rating purposes. However, to benefit from this advantage, it needed to meet certain requirements, such as a long duration and allow for deferred interest payments.
In another not very usual feature, Braskem can pre-pay debt after 5-1/2 years, and some coupon step-ups are included in the paper. Freitas noted that it was the first hybrid bond with subordinated debt and a 60-year term ever issued by a Brazilian company.
To explain the deal to investors, Braskem organized a two-day virtual road show, later extended to four. Different from the company’s usual plain vanilla offerings, the success of the operation was not a foregone conclusion.
“As it was a new kind of deal for Braskem, investors gave us little guidance on their appetite. It was all left to the day pricing was defined,” Dalben said.
Braskem paid a 8.5% coupon, which is higher than the company has paid in the past, but it helped Braskem to extend the average life of its debt to over 19 years and to start 2021 with a better debt profile. – LF
SPONSOR: Braskem SA
BANKS: BNP Paribas, Itau BBA, Morgan Stanley, Santander, SMBC Nikko, Standard Chartered
LAW FIRMS: Simpson Thacher & Bartlett; Tauil & Chequer Mayer Brown; AKD Benelux Lawyers; Milbank; Trench Rossi Watanabe
SUPPORT: KPMG; Grant Thornton
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