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

  • By Oliver West
  • 23 Mar 2018
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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.

“These are deals that require proper sales work and a lot of back and forth between issuer and investors,” said one banker with an already announced mandate. “For me it’s more interesting; issuers just have to accept that they can’t do whatever they like any more.”

Joining Colombian FIG holdco Gilex and Brazilian meatpacker Minerva in the pipe this week (see separate stories), were Brazilian utility Celse and AT&T’s Latin American subsidiary Vrio. Both potential borrowers are considering local currency.

Vrio began investor meetings on Wednesday ahead of an international bond debut that may include an Argentine peso tranche.

Ba2/BB/BB+ rated Vrio Corp, which operates DirecTV Latin America’s South American and Caribbean assets, began its roadshow in New York and will stay there on Thursday before heading to Los Angeles on Friday, London next Monday, and finally Boston on Tuesday, March 27.

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.

CitiGoldman SachsJP Morgan and Morgan Stanley — the same banks leading Vrio’s proposed IPO — are bookrunners on the bond.

On its roadshow, Vrio is understood to be targeting both EM dedicated and US corporate bond buyers.

Vrio CEO Jeff McElfresh and CFO John Connelly will represent the company on the roadshow alongside Austin Summerford of AT&T’s corporate development department and Andy Keiser’s of the US firm’s treasury.

Alongside the bond issue, Vrio’s Brazilian subsidiary, Sky, will raise R$1bn ($305m) of bank loans to be distributed to AT&T and a minority subsidiary in Sky. In its roadshow announcement, Vrio added that AT&T would provide a $250m revolving credit facility that will be subordinated to the notes, in order to strengthen liquidity.

The ratings reflect Vrio’s “solid scale and market position as one of the largest pay-TV providers in Latin America”, said Fitch, which also listed the company’s diversified operational geographies, brand recognition and stable operational cash flow generation as credit positives.

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

Celse (Centrais Electricas de Sergipe), the Brazilian energy company, has begun an investor roadshow ahead of the planned issuance of Brazilian real-denominated notes backed by Swiss Export Risk Insurance (Serv).

Goldman Sachs is sole lead on Celse’s planned R$3.1464bn ($957m) 144A/Reg S deal, which has garnered a rating of AA+ from Fitch due to the insurance from Serv. Investor meetings conclude on March 27.

“In any other situation you would not be bringing a global real deal or indeed any local currency paper,” said one Lat Am DCM banker away from the deal. “But they have a really high rating because of the guarantee, so who knows?”

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.

Celse wants the funding as it builds Latin America’s largest natural gas thermoelectric plant at the port of Sergipe in eastern Brazil.
  • By Oliver West
  • 23 Mar 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 242,241.25 929 8.19%
2 JPMorgan 223,842.40 997 7.57%
3 Bank of America Merrill Lynch 216,424.41 725 7.32%
4 Barclays 185,098.93 672 6.26%
5 Goldman Sachs 159,205.64 520 5.38%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 32,522.19 61 6.54%
2 BNP Paribas 32,284.10 130 6.49%
3 UniCredit 26,992.47 123 5.43%
4 SG Corporate & Investment Banking 26,569.73 97 5.34%
5 Credit Agricole CIB 23,807.36 111 4.79%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 10,167.68 46 8.81%
2 JPMorgan 9,894.90 42 8.58%
3 Citi 8,202.25 45 7.11%
4 UBS 6,098.17 23 5.29%
5 Credit Suisse 5,236.02 28 4.54%