Brazil’s Fibria is joining the list of LatAm issuers who are
not counting new debt issuance for 2014. Even as
interest rates rise, the pulp maker will be able to fund itself through cash
generation, its CFO said.

“As we pay down debt, our
amortization schedule will be distributed in such a way that free cash flow
generation will be enough for the amortizations,” Guilherme Cavalcanti said at
Fibria Day in New York Tuesday. “We will not
need to go to the market. This is very important in an environment of
increasing interest rates.”

Bankers and analysts expect at least some decrease in DCM
volume in 2014, down from a likely record this year,
and a record 2012.  The consensus view
is that the US Federal Reserve will begin to
remove monetary stimulus, causing borrowing costs to return to normal after
years at historic lows.

Rates have already gone up this year. Cavalcanti explained
Fibria would pay about 6.5% yield for a new 10-year bond now, up from perhaps
5.5% in May of last year.

Fibria does not need to sell new debt, and Cavalcanti added
that the bond exchanges it has used in recent years might also be off the table
next year. The plan is to pay down debt with funds from asset sales such as a
1.4 billion reais ($606 million) land sale agreed last month. However, the
official doesn’t rule out opportunities to extend Fibria’s maturity profile
should market conditions allow.

Fibria will continue to pay down debt with cash. It will
next target bonds with 7.0%-8.0% coupons, aiming to get its average cost of
debt to 3.50%-3.75%.

Since its formation after the financial crisis from VCP and
Aracruz, the pulp maker has used liability management and asset sales to
straighten its financial profile with the aim of returning to investment grade.
With the BB+/BB+/Ba1 borrower sitting on two positive rating outlooks, a
coveted return to investment grade status could come as soon as the middle of
next year, Cavalcanti said.

Cash flow should also be enough for 1.5 billion reais in
capex and other spending needs next year, he said.

Fibria is not the only frequent borrower aiming to avoid the
bond market in 2014. Miner Vale, also meeting investors in New York this week,
is unlikely to tap the bond market, CEO Murilo Ferreira said. Vale maintains
relationships with a number of development banks including BNDES, JBIC, and
Chinese and Korean lenders, as it divests non-core assets and shrinks its
capex.LF