Latin Finance - May 2008 - 8

Debt Bank Market Strikes Back The LatAm loans market turned against even blue chip frequent borrowers last month as the chickens of rising global costs of funds finally came home to roost. Mexico’s Comisión Federal de Electricidad (CFE), a bellwether borrower, struggled to get the full $2 billion it wanted in a three-year syndication, mainly because it was unwilling to flex higher. Brazil’s Gerdau is preparing to raise $500 million in the loan Not even its strongest relationship banks were willing to market for an unknown acquisition. The facility being swallow the skimpy 40 basis points over Libor margin, which shopped to MLAs has a three-year tenor and pays Libor plus was first presented to the markets in January. World credit 125 basis points, say bankers away from the transaction. Citi costs are ratcheting higher with risk aversion and banks are is leading. Also in Brazil, Braskem was readying a loan forced to pass this on to clients. Top drawer LatAm borrowers market takeout worth at least $900 million. have had it their way for years, but CFE was expected to settle Telemar is meanwhile summoning relationships for a 16 for $1.8 billion at its desired price. billion real acquisition facility. The company, whose “This is good for all banks to see that to be successful, a subsidiary Oi is making progress with discussions for the deal needs to be properly priced to clear today’s market,” says purchase of Brasil Telecom, is heard to have narrowed a short a banker involved in the syndication. Part of the new facility list of potential bookrunners down to eight. Telemar seeks to was a refinancing of an existing have as much as possible in local loan, but several of CFE’s lenders currency, which would surely test DCM Rank by Volume, Year to April 16 either left the group or significantly the depth of the domestic loan Credit Suisse on top reduced holds after seeing pricing. market and foreign banks’ CFE walks away with a bruised willingness to take FX risk. Rank Bookrunner Value $m # deals ego and reduced leverage, as do 1 Credit Suisse 1,785.76 5 other Mexican state entities. 2 BBVA 1,400.31 14 Bookrunners on the deal with Mexico’s early April sale of $1.25 3 Deutsche Bank 1,046.88 4 tickets of $250 million each include billion in warrants was well bid, 4 Unovalores 682.50 1 BBVA, RBS, BNP, Santander and highlighting robust investor interest 5 Scotia Capital 603.17 3 Citi. SocGen and Inbursa are also in rotating from legacy currencies 6 Citi 601.36 3 heard to have joined. into domestic debt. Warrants with a 7 Banorte 556.74 2 notional value totaling $1 billion 8 Merrill Lynch 548.38 1 allow investors to swap 21 series of 9 Ixe Casa de Bolsa 539.74 4 US Dollar, Euro, Deutsche Mark and 10 BCP Securities 499.43 2 Italian Lire denominated notes for Capitalizing on upgrades and Subtotal 8,264.28 34 market opportunity, State of Mexico 2014, 2017 and 2036 Mbonos Total 14,181.43 114 was set to close early May the final priced at $23 each. Source: Dealogic phase of a 27 billion peso debt The second series, totaling $250 million and swapping the same 21 refinance which extends duration series for 2017 and 2035 bonds denominated in UDIs – the first and slashes the price on most liabilities. The amortizing deal time UMS has offered the inflation-linked unit in a warrant deal – in 20, 25 and 30-year tranches, with roughly a third of the priced at $19. Demand reached $3.2 billion for the first series and amount in each, has an average duration of 12.5 years. The $962 million for the second. The exchange occurs October 9. weighted average spread is 48 basis points over 28-day TIIE. Barclays and Merrill Lynch managed the transaction. “Right now, we are at TIIE plus 170bp, so you can see the Although the bond market has largely stalled for LatAm benefit of having a [new] bank credit,” State of Mexico’s issuers, Brazil’s Construtora Norberto Odebrecht demonstrated finance secretary Luis Videgaray tells LatinFinance. small corporates can still squeak through. The Brazilian Videgaray says he detected better pricing in the bank construction conglomerate priced $200 million in 7.500% 2017 market than for bonds and got demand of 44 billion pesos for notes at 100.50 to yield 7.426%. The BB+ rated 144a/Reg S issue the deal, some of it out to 30 years. The final phase of the is a reopening of October's $200 million sale and price talk was transaction was set to close May 2 and involved long-term heard at 100.00-100.50. Credit Suisse and Deutsche Bank swaps of floating to fixed rate pesos. “Right now the swaps managed the sale. LF curve is very flat, so it makes sense,” says Videgaray. Banobras provided a debut first loss guarantee, for 27% of the deal. Typically the government development bank acts as UPDATE a lender. The transaction also has a pledge of federal revenue For more on debt see www.latinfinance.com shares and was self syndicated by State of Mexico. “Parts of the deal may be replicated, particularly the guarantee,” says Videgaray. He adds that some of the transaction might ultimately find its way to other markets. “The loans can be securitized, so they may end up in the bond market,” says the official. Brazilians Step Up Mexico Warrants Well Bid State of Mexico Brings Jumbo Refi 8 LATINFINANCE May 2008

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Latin Finance - May 2008

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