High levels of liquidity among lenders may keep margins from widening in the Latin American syndicated loan and project finance markets in 2016. Yet at the same time, credit risk is rising, suggesting borrowing costs in the loan market may not tighten, either. Bankers say relationships are being put to the test, especially with the expectation that commodity-related borrowers, which are struggling with falling revenues, will try to refinance short-term debt.

Lenders are likely to look at deals on a case by case basis, sources say, although borrowers interested in tenors less than five years are likely to find more attractive funding costs from bank lenders than in the bond markets.

Some impressive deals have hit the market. Mexican Minera Frisco was able to refinance a five-year, $1.1 billion secured loan, improving its margins at the same time. Ten lenders joined the syndication for the deal that pays 150 to 250 basis points over Libor, a considerable improvement on the 325 basis point margin on the original loan signed in December 2012. The borrower managed to close the deal almost in tandem with a Moody’s downgrade of the company by a notch to B2.

Similarly, AES Dominicana completed an ambitious two-year, $250 million loan, increasing it from the $200 million initially sought despite a perception that the tenor could be too long for what was a bridge financing.

Auto-parts maker Nemak agreed to a $300 million five-year amortizing loan with seven banks, and Grupo Bimbo signed a €300 million ($326 million) five-year revolving credit facility with a club of three lenders.

In the project finance market, Chilean Charrúa Transmisora de Energía agreed a $197.55 million 19-year financing package with local and international lenders. The energy company, developing a 200km transmission line, priced four tranches paying 165 basis points over Libor for the first five years, stepping progressively up to 240 basis points for the final period. In Mexico, La Bufa wind farm closed a $215 million loan with four lenders. Sponsors Mexico Power Group and First Reserve have a 20-year power purchase agreement signed with Volkswagen for La Bufa.

Rising rates triggered by the US Federal Reserve’s December interest rate hike will add pressure to the cost of funding for Latin American lenders. The Colombian loan market may prove an exception to the regional trend for tight spreads, sources say. Local banks are already heavily committed to the country’s 4G infrastructure program, leaving less room for further lending.

Similarly, political and economic turmoil and persistent corruption scandals in Brazil continue to knock confidence. Gerdau closed a refinancing for a three-year, $1 billion revolver with a club of nine lenders at the end of October, but sources say that chances for bilateral lending are narrowing as bankers are increasingly wary of Brazilian risk.

Up ahead, Gasoducto Sur Peruano’s (GSP) $4.125 billion loan is still under negotiation. Chilean E-CL was heard to be pushing for a tenor longer than 20 years and margins below 200 basis points over Libor for its dual-currency $750 million loan to finance a transmission line. Aela Energía is looking to back two wind farms in Chile with a development cost of $600 million and in Peru, Lima’s Chinchero airport is looking for funding. Citi and Bancolombia are negotiating a syndication for Peruvian oil producer Savia, while builder Graña y Montero and miner Buenaventura, both from Peru, are in the market for corporate loans. LF