The LatAm loans market turned against even blue chip frequent borrowers last month as the chickens of rising global costs of funds finally came home to roost. Mexico’s Comisión Federal de Electricidad (CFE), a bellwether borrower, struggled to get the full $2 billion it wanted in a three-year syndication, mainly because it was unwilling to flex higher.
Not even its strongest relationship banks were willing to swallow the skimpy 40 basis points over Libor margin, which was first presented to the markets in January. World credit costs are ratcheting higher with risk aversion and banks are forced to pass this on to clients. Top drawer LatAm borrowers have had it their way for years, but CFE was expected to settle for $1.8 billion at its desired price.
“This is good for all banks to see that to be successful, a deal needs to be properly priced to clear today’s market,” says a banker involved in the syndication. Part of the new facility was a refinancing of an existing loan, but several of CFE’s lenders either left the group or significantly reduced holds after seeing pricing.
CFE walks away with a bruised ego and reduced leverage, as do other Mexican state entities. Bookrunners on the deal with tickets of $250 million each include BBVA, RBS, BNP, Santander and Citi. SocGen and Inbursa are also heard to have joined.
State of Mexico Brings Jumbo Refi
Capitalizing on upgrades and market opportunity, State of Mexico was set to close early May the final phase of a 27 billion peso debt refinance which extends duration and slashes the price on most liabilities. The amortizing deal in 20, 25 and 30-year tranches, with roughly a third of the amount in each, has an average duration of 12.5 years. The weighted average spread is 48 basis points over 28-day TIIE.
“Right now, we are at TIIE plus 170bp, so you can see the benefit of having a [new] bank credit,” State of Mexico’s finance secretary Luis Videgaray tells LatinFinance.
Videgaray says he detected better pricing in the bank market than for bonds and got demand of 44 billion pesos for the deal, some of it out to 30 years. The final phase of the transaction was set to close May 2 and involved long-term swaps of floating to fixed rate pesos. “Right now the swaps curve is very flat, so it makes sense,” says Videgaray.
Banobras provided a debut first loss guarantee, for 27% of the deal. Typically the government development bank acts as a lender. The transaction also has a pledge of federal revenue shares and was self syndicated by State of Mexico.
“Parts of the deal may be replicated, particularly the guarantee,” says Videgaray. He adds that some of the transaction might ultimately find its way to other markets. “The loans can be securitized, so they may end up in the bond market,” says the official.
Brazilians Step Up
Brazil’s Gerdau is preparing to raise $500 million in the loan market for an unknown acquisition. The facility being shopped to MLAs has a three-year tenor and pays Libor plus 125 basis points, say bankers away from the transaction. Citi is leading. Also in Brazil, Braskem was readying a loan market takeout worth at least $900 million.
Telemar is meanwhile summoning relationships for a 16 billion real acquisition facility. The company, whose subsidiary Oi is making progress with discussions for the purchase of Brasil Telecom, is heard to have narrowed a short list of potential bookrunners down to eight. Telemar seeks to have as much as possible in local currency, which would surely test the depth of the domestic loan market and foreign banks’ willingness to take FX risk.
Mexico Warrants Well Bid
Mexico’s early April sale of $1.25 billion in warrants was well bid, highlighting robust investor interest in rotating from legacy currencies into domestic debt. Warrants with a notional value totaling $1 billion allow investors to swap 21 series of US Dollar, Euro, Deutsche Mark and Italian Lire denominated notes for 2014, 2017 and 2036 Mbonos priced at $23 each.
The second series, totaling $250 million and swapping the same 21 series for 2017 and 2035 bonds denominated in UDIs – the first time UMS has offered the inflation-linked unit in a warrant deal – priced at $19. Demand reached $3.2 billion for the first series and $962 million for the second. The exchange occurs October 9. Barclays and Merrill Lynch managed the transaction.
Although the bond market has largely stalled for LatAm issuers, Brazil’s Construtora Norberto Odebrecht demonstrated small corporates can still squeak through. The Brazilian construction conglomerate priced $200 million in 7.500% 2017 notes at 100.50 to yield 7.426%. The BB+ rated 144a/Reg S issue is a reopening of October’s $200 million sale and price talk was heard at 100.00-100.50. Credit Suisse and Deutsche Bank managed the sale. LF