Lat Am DCM turns creative despite softer tone
Latin American bond bankers are presenting unusual structures to potential buyers, even as markets remain weak and more straightforward, well-known credits are managing only modestly successful deal execution
The region’s bond pipeline comprises two deals with at least some local currency component — a perpetual from a Brazilian corporate, and a senior bond from the holding company of a Colombian bank.
In its roadshow announcement to investors, Vrio said it wanted to issue 144A/Reg S senior notes with an “intermediate” maturity denominated in either dollars, or dollars and Argentine pesos.
Rating the proposed notes, Fitch said that the company was planning $750m of dollar notes and $750m-equivalent of peso-denominated bonds.
“Although markets are not too strong, there has been good feedback on the Argentine peso tranche and it’s still an option,” said one banker with knowledge of the deal.
“Overall it’s an interesting deal for many reasons: the bond is just one component of the financing, and really this could be an investment-grade quality company, were it not for the sovereign ratings of its largest two markets (Brazil and Argentina).”
The company wants to raise debt ahead of a proposed initial public offering that will be used to repay intercompany loans of $526m and pay a dividend to AT&T.
Vrio’s cash flow is 90% concentrated in Brazil and Argentina — hence the planned Argentine peso bond and real-denominated loan.
But given its mainly local currency-denominated costs, the company is also planning to swap a portion of the dollar tranche into Colombian and Chilean pesos to minimise currency risk.
The company, which posted Ebitda of $1.2bn in 2017, operates in 11 Latin American countries with 13.6m subscribers, as of the end of 2017. Fitch expects Vrio’s leverage to remain between two and 2.5 times Ebitda in the medium term.
Swiss-backed Brazilian eyes reals
Fitch said that the rating reflected the non-payment insurance that Serv had provided, adding that it views liquidity as sufficient to keep debt service current.
“Serv insurance coverage is comprehensive in scope, ensuring payment of debt service and insuring political/transfer risk, credit risk, force majeure and benefits from a straightforward and clear claims process,” said the rating agency.