Latin Finance - November/December 2011 - 30

loan syndications

Buyers’ Remorse
by Karen Schwartz he recent revival in Latin American loan syndications may soon be beset by yet another slowdown as European banks retrench in the face of pressures at home and scramble to meet shortfalls in capital buffers. More disintermediation, stricter structures and higher margins are the likely consequences for the region’s issuers. It was only a few months ago that the region’s loan markets were suffering from a bout of margin deflation spurred by banks’ enthusiasm to participate in revolvers at what some thought uneconomical spreads, but which held out opportunities for ancillary business with some of Latin America’s top corporates. Indeed, this year continued to see the loan market make a steady comeback from the dramatic declines seen in the wake of the 2008 financial crisis. According to Dealogic, volumes reached a comparatively healthy $36.88 billion year to October 25. That was a slight increase on the $35 billion seen during all of 2010, and certainly more than $30 billion in loans secured in 2009. Yet as markets turn and funding costs spike, some institutions are undergoing a severe case of buyer’s remorse. In what may be a repeat performance of the 2008 financial crisis, banks are already heard withdrawing support from certain borrowers to focus on core clients, or simply laying low until a clearer picture emerges. Others are lending less but taking on a more advisory role and deepening relations with local banks that are still liquid. “We have seen an increase in bank volumes, but the region has been affected by issues outside of Latin America, most recently the lack of dollar liquidity for European banks that hit in August, and this has sidetracked the whole bank side of the equation,” says a senior banker at a US institution.

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European debt problems are forcing banks to retrench, leaving LatAm’s loan market bracing for tougher pricing, stricter covenants, and a fall in volumes.
As of late October the market hadn’t come to a standstill, but was certainly losing some steam as bankers put the finishing touches on deals launched earlier in the year, including a club-style $140 million six-year for Peruvian fishery Plenty coming due
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LatAm Corporate Debt Maturities ($bn)
Project Loan Loan

be the better leading indicators. While blue-chips will not see the high 300 to mid 400 spreads these borrowers had to pay, the loan market is about to become more expensive in light of the pressures European banks will have to endure in coming months.

Aside from new Basel III requirements, 80 euro-zone leaders are 70 also calling on financial institutions to increase 60 their core Tier 1 capital 50 ratios to 9% by June next year as they look 40 to restore confidence 30 in a banking system 20 heavily exposed to sovereign debt. 10 According to the 0 European Banking 2012 2013 2014 2015 2016 Authority, German, Source: Dealogic French, Spanish and Italian banks will Exalmar, and a $850 million 12-year FPSO require estimated capital buffers of €5.2 financing from Brazilian magnate Eike billion, €8.8 billion, €26.5 billion and Batista’s oil services company OSX. €14.8 billion, respectively. Meanwhile, Chilean credits continued And while the idea is to raise the to get away with ultra-tight pricing. Oil required capital without excessive company ENAP was offering just Libor deleveraging, such efforts are likely to plus 80 basis points on a $350 million ripple through the broader markets as five-year, while pulp and paper company well as Latin America, where some banks CMPC secured $400 million through a were already heard selling assets in the five-year term loan with a margin of Libor secondaries. plus 65 basis points and $200 million In an effort to appease investors and through a revolver heard at around 70 rating agencies concerned about the basis points. amount of sovereign debt on their books However, OSX and Exalmar may and comply with new capital standards,
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European Pressures

30 LatinFinance

November/December 2011
Latin Finance - November/December 2011

Table of Contents for the Digital Edition of Latin Finance - November/December 2011
