Latin Finance - January/February 2012 - 42

The $1 billion deal was initially launched when there was still liquidity in the syndicated loan market, says Alvaro Fernández, president of Alfa, the conglomerate of which Nemak is a part.

Nemak prepares for growth in the auto sector The favorable market conditions made the addition of a $145 million threeyear revolver possible, adding operating ﬂexibility without increasing leverage. The revolver funds working capital, while the term loan reﬁnances a previous facility. “We were very pleased with the level of demand we got, which was driven by the company’s strong ﬁnancial performance, favorable market conditions, and the conﬁdence and support of the participating banks,” Fernández says. Of the billion, 25% was denominated in euros and 75% in dollars, because approximately 25% of Nemak’s revenues are generated in euros. The amortizing loan with a four-year average life is tied to a leverage grid and out of the box paid Libor plus 300 basis points for over three times, and drops to 275 for leverage between 2.5 and three times, to 250 for two to 2.5 times and to 225 below two times. BBVA, Citi, HSBC and Santander led the transaction. In the end 17 banks committed, from Mexico, the United States, Europe, Asia, and

Latin America. With this transaction, the company was able to remove restrictions and guarantees from the previous ﬁnancing in 2009, providing it with some ﬁnancial ﬂexibility to continue its growth plans. “The company came out of the 2009 crisis in much better shape due to the measures it took to improve e ciency, allowing it to recover in less than two years, reaching pre-crisis sales and proﬁtability levels. This transaction represents a great step towards further strengthening Nemak’s ﬁnancial condition,” Fernández says. Timing was also key for the reﬁnancing, Fernández adds. European banks, which are now struggling with their cost of funds because of the European crisis, would not have been able to participate in the facility if pricing had occurred later in 2011. Looking ahead, the syndicated loan market is not as liquid as it was, Fernández says, and with Mexico’s upcoming presidential elections, he does not expect there will be similar transactions for Mexican corporate players, at least with similar terms and conditions. LF

Follow-on Equity Offering
Gerdau

Navigating Rough Waters
ollow-on equity sales held up a bit better than their IPO counterparts, and certain blue-chip issuers were able to make use of them even when the IPO markets were ﬁrmly closed in the second half of 2011. Gerdau’s 4.99 billion real ($3.14 billion) follow-on in April stood out not only as the largest equity deal of 2011, but as a particularly complex structure involving two di erent share classes. The deal, managed by Bradesco, BTG Pactual and Itaú BBA, was the largest

in Brazil since the previous year’s $70 billion Petrobras sale. It was also Brazil’s second-ever deal, after Petrobras, to make use of the EGEM status, a simpliﬁed faster regulatory procedure similar to the WKSI in the US market. Gerdau sold 203.8 million preferred shares and 68.0 million common shares, at 19.25 reais per preferred and 15.60 reais per common share. More than 130 investors participated. “It was a complex transaction,” says Fernando Iunes, executive director of investment banking at Itaú BBA. “The company was very transparent throughout the process, and was clear about why the deal was being done.” The steelmaker did well to get a 0.6% discount to the 19.37 reais previous preferred share closing price, and no discount to the previous common share closing price. However, it should be noted the shares had sunk amid talk of Gerdau preparing a takeover o er to rival Usiminas. Neither Gerdau, nor fellow Brazilian blue-chip CSN, ended up making a sizable move for some or all of Usiminas. In the end, Argentina’s Ternium pulled the trigger, paying 5.03 billion reais for 27.7% of Usiminas. Investors didn’t want to believe it at the time, Iunes explains, imagining a purchase of Votorantim’s stake in Usiminas, which ultimately went to Ternium in November. The decision to strengthen the company’s capital also ended up being the right one, Iunes says. Of the preferred shares sold in the deal, 69.0 million represented a secondary share o ering by Metalurgica Gerdau and BG Participacoes. The two used their proceeds to participate in the primary portion, switching from the preferred to the common share class. The transaction was also the ﬁrst SECregistered Brazilian deal to be managed by Brazilian banks, according to lead managers. LF

UPDATE
For the full story and daily news on private equity, see www.latinﬁnance.com

42 LATINFINANCE

January/February 2012

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Latin Finance - January/February 2012

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