South America

DCM bankers covering Brazil are hopeful that liability management exercises from financial institutions may provide them with something to do in the coming weeks as the new issue market suffers depressed volumes.

Buy and sell side credit traders expressed disappointment on Thursday, after the US Federal Reserve elected to keep interest rates on hold.

Troubled Brazilian shopping centre owner General Shopping Brasil has launched a heavily discounted tender of its 10% senior perpetual notes in an effort to reduce its dollar debt, although Fitch says that a debt restructuring is “likely to occur in the near future”.

The issuer formerly known as Pacific Rubiales fell just one notch away from triple-C status on Wednesday after Moody’s downgraded the borrower by three notches from Ba3 to B3 and kept it on negative outlook.

Banco do Estado do Rio Grande do Sul (Banrisul) has become the third Brazilian lender to launch a tender offer for existing debt as bond prices in the country hit lows.

The downgrade of Brazil by Standard & Poor’s into sub-investment grade territory on Wednesday had been seen as inevitable for nearly two months. But when it came, the downgrade was as brutal as it could have been.

LatAm syndicate bankers said Codelco had carried out a perfectly executed trade on Wednesday with its new 10 year, but some highlighted that the re-offer yield should be a lesson to borrowers about the dangers of waiting to issue.

Brazil’s downgrade to junk will come as little surprise to market observers, given the increasingly bearish sentiment seen in Brazilian sovereign bonds.

Chilean government-owned copper miner Codelco raised $2bn of 10 year notes on Wednesday in a deal that provoked debate about the size of the new issue premium but was unanimously considered a positive for the LatAm market.

Standard & Poor’s put the Brazilian sovereign into sub-investment grade territory late on Wednesday in a move that came sooner than most had expected but had already been accepted as inevitable.

General Shopping Brasil has exercised its right to defer the payment of interest on its $150m 12% perpetual subordinated notes, meeting the expectations of credit analysts.

Bond prices in the secondary market, alongside recent analyst reports, suggest a belief that Venezuela will meet its immediate debt obligations. But the prospects for next year appear murkier.