Argentine companies were starved for capital last year. But in July, as the sovereign was negotiating its $30 billion debt swap, Deutsche Bank managed to get a clutch of banks to syndicate a $220 million loan for oil producer Pecom Energía, a subsidiary of Argentina’s Pérez Companc group.
With a dearth in the availability of political risk insurance for Argentina, Deutsche had to devise a new structure to underpin a syndicated loan for the company, says Michael Jakob, director senior debt capital markets at Deutsche Bank Securities. The Pecom loan was the only new money loan in Argentina last year that closed without deal political risk insurance, making it LatinFinance’s choice for syndicated loan of the year.
“The biggest challenge for Argentine corporates [in 2001] was to get financing at reasonable and affordable terms,” says Luis Sas, finance director of Pecom Energía. “Deutsche came up with this very innovative structure at terms we could afford.” Deutsche pitched the loan structure to Pecom in July when the company needed to refinance maturing debt and cover general operating expenses.
The four-year, $220 million unsecured floating rate notes with a 9.3% all-in cost was substantially below Argentine sovereign bonds. If a convertibility event were to occur, Pecom would pay the subsequent debt service payments to Deutsche Bank with cash held offshore or with deliveries of crude oil. In the case of oil payments, Deutsche will buy all oil for debt service payment at a minimum price of $15 per barrel.
The structure replaced Pecom Energía risk with Deutsche bank payment risk, a feature that proved its worth as Argentina’s financial system collapsed in December. Jakob says Deutsche hedged itself by requiring Pecom to prove it had cash available for payments. “But if that cash is not available,” he says, “payments must be made in crude oil deliveries.”
If Pecom must service its debt with oil, Deutsche Bank will sell the oil to pay the other lenders, which include BankBoston, Banco Santander Central Hispano and Dresdner Kleinwort Wasserstein.
There are few companies in Argentina that can match the profile of Pecom’s parent company, Pérez Companc. It has a solid financial track record, strong relationships with international banks and growing overseas investments. Deutsche underwrote $150 million, but when more than 10 banks signed up as joint arrangers, the deal topped out at $220 million. “When we began marketing the deal, some banks felt that the loan’s structure materially mitigated, or in the view of some, even removed Argentine country risk,” says Jakob. “We had five banks come in and act as underwriters, at which point we decided to increase the deal to $180 million.”
Deutsche then convinced five smaller retail banks to participate, including Banco del Crédito del Perú, which had never before financed an Argentine company. Antonio Di Paola, corporate finance associate at the Peruvian bank, says, “We are very aware that in Argentina there is high sovereign and convertibility risk, but this transaction and its structure allowed us to participate.” Banco del Crédito del Perú sold $10 million.
Volumes of syndicated leading fell last year to $37.7 billion compared to $44.57 billion in 2000. Two jumbo loans were syndicated in the Latin American market last year. Chilean energy company Enersis and its 60%-owned subsidiary, Empresa Nacional de Electricidad (Endesa-Chile), signed a $1 billion syndicated loan in August, the largest private corporate financing in Latin American in 2001. Led by Dresdner Kleinwort Wasserstein and Citigroup, 24 banks participated in the deal. Lenders split the loan into two tranches, allocating $500 million to Enersis and $500 million to Endesa. The three-year term loan priced at Libor plus 75 basis points for Enersis and Libor plus 87.5 basis points for Endesa with a bullet repayment at maturity. The deal originally launched at $900 million, but positive market response upped it to $1 billion. The Enersis-Endesa deal was Chile’s largest-ever syndicated loan.
Telemar, the Brazilian telecommunication company, signed a $1.43 billion loan, led by Citigroup and ABN AMRO. This was the largest Brazilian telecom financing deal for 2001. The deal was split between a $700 million syndicated loan with 16 banks and $725 million in vendor financing from equipment suppliers Nokia, Alcatel and Siemens.
In June, Mexico’s América Móvil, a wireless telecommunication company, made its first foray into the syndicated loan market with a $500 million loan led by Citigroup.
Deutsche Bank’s Jakob believes syndicated loan volumes in Chile and Brazil will be buoyant in 2002 but the Mexican market could start losing ground to the local capital markets. “We have argued that Mexico’s loan market is strong and there will be a steady deal flow out of Mexico,” he says. “But the local capital market is starting to develop as a viable alternative and complement to the syndicated market.”