LatinFinance - July/August 2014 - 4

NEWS
BONDS

A market return by Ecuador and a series of maneuvers by
Argentina dominated debt markets in the second quarter.
By Eduardo García

Defaults, revisited
Sovereign defaulters Ecuador
and Argentina marked the
May-June period in the bond
market: Ecuador with a $2
billion issue that surprised
bankers and investors alike,
and Argentina with a series of
moves to avoid default after
a US court ruling that took
markets by surprise.
While the two sovereigns
dominated the headlines,
a barrage of other Latin
American issuers continued
making the best of strong
liquidity and appetite for highyielding assets to squeeze in
prices.
In mid-June, the US Supreme
Court upheld a ruling by
a lower court calling for
Argentina to pay some $1.3
billion to holdout creditors
before servicing restructured
bonds. The ruling came shortly
before a $900 million payment
to restructured bondholders
came due on June 30.
Paying holdout creditors
in full would trigger a clause
agreed during the sovereign's
debt restructuring, that any
better terms subsequently
offered to other bondholders
would be extended to all
creditors. The clause expires at
the end of 2014.
Argentina responded to
the Supreme Court decision
defiantly at first, proposing
to swap restructured debt
into local law instruments
and trying to wire payment to
bondholders. But US courts
blocked its attempt to pay

4 L ATINFINA NCE.COM - July/August 2014

restructured bondholders,
and the sovereign opened
negotiations with holdout
creditors.
But as Ecuador's comeback
shows, the new issue market
may be in a lenient mood.
Despite the fact that
president Rafael Correa is still
at the helm of the country,
as he was when Ecuador
defaulted in 2008, yieldstarved investors dived head
first for the 10-year bond,
placing $5 billion in orders
and allowing lead managers
to tighten the price slightly to
7.95%. The country could have
sold an even cheaper deal,
had it chosen to raise less cash.
Instead, it decided to upsize to
$2 billion, from the $1 billion
target, sources said.
Ecuador's successful return
to the market was the result of
the country's efforts to restore
its credibility as a borrower
after its 2008 default.
"Even though Correa is a bit
of a populist and antagonizes
the markets, he has been much
more pragmatic than his peers
in Argentina and Venezuela,"
said a source. "Ecuador has
done a pretty big effort to
clean up the 2012 and 2030
bonds that were left in the
market after the default. Very
little is left and [those holders]
don't have the muscle to get
organized and derail the new
issue, that's why the market
opened its doors so quickly."
The second quarter in the
cross-border bond market

DCM rank by volume, year to June 30, 2014
Citi leapfrogs JPMorgan
Rank

Bookrunner

1
2
3
4
5
6
7
8
9
10

HSBC
Citi
JPMorgan
Deutsche Bank
Credit Suisse
BofA Merrill Lynch
Santander
Goldman Sachs
Banco do Brasil
Bradesco
Total

Value $m

# Deals

10,992
10,731
8,067
7,618
7,205
5,960
5,489
5,212
4,466
4,157

45
44
28
31
23
28
29
11
16
20

99,525

156

Source: Dealogic

was notable for the high
number of deals, as well as
for strong books and tight
prices. Mexican oil pipeline
operator Fermaca tapped
the market on May 1, pricing
a $550 million 24-year senior
secured bond that was sold at
par to yield 6.375%, some 60
basis points below initial price
thoughts, after building a $4.5
billion order book.
Caixa Econômica
Federal, Fibria, Brasil
Foods, Ecopetrol, América
Móvil, Televisa and Mexican
construction firm ICA
followed with transactions
that sparked strong interest
from investors.
Uruguay took advantage
of a short pause in the market
in mid-June to carry out a
one-day switch transaction
under which the sovereign
sold a $2 billion 2050 bond
while it bought back $1.17

billion worth of bonds in seven
tenors, extending the country's
average debt maturity by around
a year. Banco do Brasil and Rio
de Janeiro state pension fund,
RioPrevidência, followed with
transactions that were heavily
oversubscribed.
Odebrecht tapped the bond
market twice in the period, first
pricing a $400 million perpetual
note on June 10 that was said to be
15 times oversubscribed, and then
taking $3.25 billion in orders for
a 15-year $500 million about two
weeks later.
"The appetite for Latin
American debt is still very strong,
especially for a credit like this,
which people like a lot," said a
source following the deal.
Several bankers said the
region's bond market is likely
to continue enjoying strong
tailwinds for a few more months,
despite a slowdown in Brazil
ahead of the October election. LF
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LatinFinance - July/August 2014

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