| Jaime Frontera |
Increased lender appetite and limited demand have reinvigorated competition in the Latin American syndicated loan market, and companies are cashing in on cheaper pricing and extended tenors. Braskem, a Brazilian petrochemical company, is in the market with a deal that offers cheaper pricing and a tenor longer than it has had, and energy giant Pemex just closed a deal it jumped at because of attractive spreads. "Since prices and spreads are adjusting again, we decided to perform this transaction now to benefit from lower prices," said Octavio Ornelas, managing director of finance and treasury of Pemex. The interest among banks is being driven by attractive returns and improving fundamentals in the region, said Jaime Frontera, head of loan sales for Latin America at Barclays Capital. The competition has ratcheted up because many companies have issued long-dated bond deals and are not in urgent need of capital. With banks more interested and borrowers less desperate, spreads are coming in and tenors are going out.
"In general, the combination of local market liquidity, high level of dollar bond issuance and limited demand for new capital in the region has pressured fees and margins as bank market players compete for a limited asset pool," explained Jorge Wilmer, managing director of emerging debt capital markets for Latin America at HypoVereinsbank. According to Dealogic, in the first quarter of 2004 the average tenor on syndicated loans jumped up to five years from three in 2003.
The deal for Pemex, which is located in Mexico but considered Latin American by bankers, offered the company good pricing and a more flexible alternative to the banker's acceptance program it was using to finance pre-export and import related transactions, Ornelas said. The $1 billion credit is equally split between three-and-a-half and five-year tranches with pricing of LIBOR plus 55 and 75 basis points, respectively.
Syndication of a $125 million deal for Braskem is set to close tomorrow. The facility, led by Calyon, West LB and Natexis Banques Populaires, is split into a three-and-a-half year, $75 million tranche priced at LIBOR plus 3 1/2%; and a five year, $50 million piece at LIBOR plus 4 1/2%. The last time the company did a three-and-a-half year deal was in 2002, and pricing on it was 50 basis points higher, said Laurent Deroy, director of loan syndications at Calyon. Additionally, the company was able to extend the maturity of its debt. "This is the first time that Braskem has been able to negotiate a five-year maturity," Deroy said.
Wilmer warned that as U.S. interest rates begin to rise and liquidity tightens there may be a reversal as borrowers can expect an adjustment in the risk/return parameters they've been enjoying. That will not be bad news for banks. "Once this happens, the syndicated loan market may benefit from wider spreads, which in turn may attract more bank investors," he said.