LatinFinance - July 2013 - 40

Brazilian bioenergy

$300 million. Strong performance of the 2018 non-call four
non-call four bond. US, European and even Asian accounts
meant it could return last year to raise another $300 million, that
put in $1.4 billion of orders. The proceeds replace a lot of the
time at 10 years. The extra maturity meant a 12% yield.
old sources of funding for Tonon, part of the mid-size group of
GVO has had to rework some of the covenants under its
producers that have been able to transform their businesses with
old debt, such as tweaking spending caps. Earlier this year, the
debt market access. Freed from the worries of relying on shortcompany was at risk of breaking the terms of a $100 million loan
term debt, these issuers can focus on production, de-leveraging
from Credit Suisse for the second time in two years, and was in
and, in some cases, growing.
talks to renegotiate the agreements that limit spending.
“With the current trend of new issuers like Aralco, GVO
Aralco, another newcomer, had to adjust terms and pay a
[Grupo Virgolino de Oliveira] and Tonon, you could see other
slightly higher price to get its debut done in May. The borrower
companies accessing the markets in the next two to three
had to change the call structure on the 2020 to three years from
months,” Fitch analyst Ingo Araújo said in May. More companies
four, and investors were pleased with the 10.25% yield.
operating with more liquidity is good for the sector, he says.
“For these companies
Tonon had more than
to obtain stable funding for
300 million reais in shortBittersweet
five to 10 years, instead of
term debt in January
Sugar price ($/pound)
90 days, is everything,” says
2012. That is now about
Alexandre Aoude, global
100 million reais. Only
0.3
head fixed income at Itaú.
about 15% of its assets are
0.28
“It lets them plan. It lets
encumbered, compared to
0.26
them produce, and deal with
95% before.
0.24
volatility and cycles.”
In a cyclical sector
As with most high-yield
characterized by aggressive
0.22
sectors, it was unclear in
leverage, the key to
0.2
early June to what extent
managing these new funds
0.18
market access would
is maintaining liquidity.
continue. Secondary levels
A bigger harvest this year
0.16
had slipped for these bonds,
should help.
0.14
amid the larger EM selloff
“We must make sure we
0.12
seen during that time.
keep very stable margins,
0.1
cash flow generation, [and]
Mar-2010
Dec-2010
Sep-2011
Jun-2012
Mar-2013
Stocks out
keep investors informed,”
The equity market, however,
says Rodrigo Aguiar, CEO of
Source: NYMEX
is still not an option for
Tonon.
most. Favoring liquidity and
The bond takes care
familiarity, investors doubt these companies would make the cut.
of most of the company’s funding needs, but he says there are
Biosev, the sugar, ethanol and bioenergy arm of Louis Dreyfus
also cheap BNDES funds with tenors suitable for the cycle of the
Commodities, managed to sell a $407 million IPO in April by
industry.
offering investors a put option. After an aborted deal in 2012, it
Having others issue ahead of it helped Tonon market itself
had to guarantee buyers their money back if the shares weren’t
to international investors, Aguiar says, as accounts were already
profitable in the first year.
familiar with the industry.
Biosev planned to spend 70% of the proceeds on expansion,
Usinas São João Açúcar e Álcool (USJ) impressed last year
when it was one of the first issuers to re-emerge after a shutdown including upgrades, acquisitions and greenfield projects, and
the remainder to pay down some 200 million reais in dollar and
in the dollar bond market when Hurricane Sandy struck the
real-denominated debt. The shares traded at 13.85 reais at the
United States. The $275 million debut 2019 non-call four bond
end of May, down from the 15.00 real IPO price. The options are
came with a 10.125% yield, paying a bit for increased financial
exercisable at 16.57 reais.
flexibility. Investors placed nearly $900 million of orders.
Biosev was obliged to hold the IPO under a 2009 shareholders’
The sale means 90% of USJ’s debt is long-term, says Rui
agreement, and has the backing of a large international player.
Marcelo Ré, investor relations manager at USJ – not to mention
Equity is not yet an option for companies of Tonon’s size, Aguiar
at a lower cost than domestic financing options. The operation
says. “In 2006 to 2007 Brazilian companies with Ebitda of more
also forces USJ and its issuing peers to improve their corporate
than 200 million reais would be entitled to issue shares,” Aguiar
governance standards.
The covenants are more flexible than bank debt, Ré says. Most says. “In the time before Lehman maybe a company of our size
notably, the new debt is unsecured, and the old debt required the would have access to equity markets, but now we must crush
more than 15 million tons.”
company to pledge assets.
Securitizations of receivables could offer an additional
Grupo Virgolino de Oliveira (GVO) is the veteran of the
fundraising option. Agricultural receivable securitizations
group, having first tapped the market in January 2011 to raise

40 LatinFinance

July 2013

LatinFinance - July 2013

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