May 26, 2015 / 7:50 PM / in 2 years

LatAm spreads widen in risk-off session

NEW YORK, May 26 (IFR) - Latin American credits were ending the day wider in spread terms on Tuesday as tumbling stocks and weaker commodity prices weighed on sentiment.

With US equity markets blinking red today, investors were largely in risk-off mode in Latin America, making for a quiet session in the secondary and primary markets following the long Memorial Day weekend in the US.

“Investors have cash, but this isn’t a market you go out in and buy credits at tight valuations,” said a banker. “If you feel that markets could drop from a rate hike, it feels expensive.”

A rallying dollar may have brought some support to the US Treasury market, which saw yields on the 10-year fall back to around 2.13%, but it also left commodities on the back foot and dampened sentiment toward the region.

Oil was particularly hard hit with Brent and US crude slipping a good 3%, further pressured by expectations of increased supply.

Bonds issued by Pacific Rubiales continue to suffer price swings following a bounce last week on news that Mexican conglomerate Alfa and Harbour Energy would acquire the embattled oil company.

The company’s 5.625% 2025s were back down at 83.00-84.00 Tuesday after hitting 86.00 last Thursday on the acquisition announcement amid good two-way flow.

Investors are in two minds whether to reduce exposure to a credit that has taken a beating this year, or hold it for further upside once Alfa takes over the company.

For now, many are realizing profits or deciding to cut their losses on bonds that they bought in the 90s.

Accounts are also fretting over the possibility that Alfa will decide against guaranteeing bonds issued by Pacific Rubiales, though some traders are shrugging off such concerns.

“I think that Alfa being the owner of Pacific Rubiales is enough,” said Rodrigo Covian, head of fixed-income trading at Bulltick. “A lot of people think there is still a lot of upside potential. Alfa’s management is very good. The bonds have the potential to go a lot higher, but it will take time.”

Meanwhile, in the primary markets, the visible pipeline is once again starting to swell with both LatAm Airlines and CAF becoming the latest borrowers to mandate on potential bond sales.

More deals are expected once documentation is finished, though many borrowers are still dissatisfied with pricing levels. “Top tier borrowers are targeting tighter pricing and they are not companies that need to issue,” said the banker.

PIPELINE

LatAm Airlines started global roadshows this week as it markets a potential senior unsecured bond offering and seeks to tender for TAM’s 9.50% 2020s. The company was in Lima on Monday and will head to London on May 27, Boston on May 28 and Los Angeles on May 29. The following week it will be in New York on June 1 and 2, leaving June 3 open for conference calls.

Ratings are Ba2/BB/BB- by Moody‘s, S&P and Fitch. The deal is being done in conjunction with a tender offer and consent solicitation for US$300m in outstanding 9.50% 2020s issued by TAM.

Holders will be paid US$1,053 per US$1,000 in principal it they tender by the early bird date of June 4. Thereafter but before the final expiration on June 18, the tender offer drops to US$1,023. The company also has the option to call the bonds at 104.75 and may do so after the final expiration of the tender.

Citigroup and JP Morgan are acting as global coordinators as well as joint bookrunners along with Bank of America Merrill Lynch, BTG Pactual, Credit Agricole and Santander.]

Latin American development bank Corporacion Andina de Fomento (CAF), rated Aa3/AA-/AA-, has hired Deutsche Bank and Westpac to manage 10-year Kangaroo bonds. The offering will price in the near future, subject to market conditions.

Brazilian food company BRF (Baa3/BBB/BBB-) has hired BNP Paribas, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Morgan Stanley and Santander GBM to schedule a series of fixed-income investor meetings in Europe ahead of the potential sale of a euro-denominated 144A/Reg S Green bond.

The company held investor meetings today in Frankfurt, Zurich, Geneva and Paris, and will head to Amsterdam and London on Wednesday.

Goldman Sachs is looking to bundle debt backing three of Colombia’s 4G highway projects and sell it as an up to US$500m 144A bond in the US markets as early as July.

Mario Alberto Huertas, the local construction company that won the highway concessions, has appointed Goldman Sachs as global co-ordinator and lead arranger for the financing efforts. It has also retained local bank Structure Banca de Inversion as financial adviser.

Mexico’s Comision Federal de Electricidad (CFE) has hired a string of banks to take it on the road to meet fixed-income investors.

The state-owned power company has selected BBVA, Bank of America Merrill Lynch, Citigroup, Goldman Sachs, HSBC, Morgan Stanley and Scotiabank to organize the meetings.

The borrower, rated Baa1/BBB+/BBB+, will be in Mexico City on May 27 and May 28, Los Angeles on May 29, London on June 1, Boston on June 2 and New York on June 3. (Reporting by Paul Kilby; Editing by Natalie Harrison)

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