Latin Finance - January/February 2011 - 59

syndicated loans

Rekindling Loans
by Natalie Feary he syndicated loan market in 2010 was characterized by an excess of liquidity, with a significant lack of demand, as borrowers turned to the bond market because of the attractive spreads. Deals have been oversubscribed as banks rushed to try to put their balance sheets to work, structures have become more flexible and pricing has been squeezed, with the first reverse flex on a project finance deal in at least five years taking place in November, say market participants. “From September to October onwards, there has been a downward trend in pricing, which had been interrupted from June to September and has been pushed further down thereafter,” says Ernesto Meyer, head of LatAm syndicated loans at BNP Paribas. “And there is still additional room for spreads to fall because of competition on the bond side,” he adds. In the platform and rig space deals from Brazilian names, pricing on similar construction risk and tenor illustrates the tightening. In July, Petroserv priced a $460 million six-year facility at 290 basis points over Libor. By November Queiroz Galvão priced a $575 million seven-year syndicated loan for Alpha Star at 250 basis points over Libor for the construction period and 225 basis points for post-construction. Deal volume in 2010 was $29 billion, the lowest since 2004, when it was also that number. Deal volume in each of the past two years was $46 billion, while in 2006 and 2007, it topped $64 billion and $75 billion, respectively. Longer tenors, lighter covenants and increased flexibly are expected by market participants, though there may reach a point where international banks cannot justify the exposure owing to cost of funding. Spreads on dollar funding may reach a floor, because despite local banks

International banks are eager to re-enter the LatAm bank market. But cost of funds, spread compression and better DCM terms will keep a lid on volume.
upgraded its syndications group with the appointment of Monica Macia from Citi and Ricardo Rubio from JPMorgan. Meanwhile JPMorgan, which has blown hot and cold on syndications over the years, also staffed up to support a growing M&A and DCM effort. It hired Rodrigo Gracia from Calyon in the same role. “Banks want to lend an increasing amount to LatAm names,” says Meyer. “There is a willingness by European banks to diversify their portfolios. As there is not enough paper, and relationships are key for cross-selling purposes, there is a willingness to accept lower spreads than they would in Europe.” With downward pressure on spreads towards the end of 2010, there are certain deals that some European banks cannot follow. Some retail banks are taking smaller tickets, as not having a local presence makes it hard to compete, adds Meyer.

More spread compression, says Meyer being able to lend at cheaper levels in local currency, they also have funding limitations in dollars, says a syndicated loans banker.

Local Pressure

Staffing Back Up

LatAm is experiencing strong economic growth at a time when developed markets are still struggling. As a result, international banks are once again looking to play a more active role in the region and to increase exposure, with international banks particularly hungry for assets. This includes recovering big balance sheet players like Bank of America, which last year hired Gonzalo Isaacs from BNP Paribas to head of LatAm loan syndications. HSBC meanwhile

Furthermore, international banks face increased competition from local banks that have been active in bilateral and club deals in 2010, having withstood shocks from the financial crisis. “International banks want to catch up with local banks and what they have on their balance sheets, but this will be a challenge for international banks, given the new strength of local banks,” says Meyer. Brazilian institutions have proven especially strong, in particular Itaú and Bradesco, as well as BCP in Peru. Banks in Brazil, Chile, Peru and Colombia are among those that market

January/February 2011

LatinFinance 59

Latin Finance - January/February 2011

Table of Contents for the Digital Edition of Latin Finance - January/February 2011