UPDATE 1-Brazil's Cielo to issue debt to pay for stake in card venture

miércoles 17 de diciembre de 2014 16:35 GYT

(Adds details on the transaction in paragraph 2)

SAO PAULO Dec 17 (Reuters) - Cielo SA, Brazil's largest card payment processor, agreed on Wednesday to issue 3.46 billion reais ($1.27 billion) in local debt to pay for the purchase of a 70 percent stake in a credit card joint venture with state-controlled lender Banco do Brasil SA.

The board of Barueri, Brazil-based Cielo approved the sale of the real-denominated notes on a private placement, according to a securities filing. In a call after the deal was announced, executives at Cielo explained that Banco do Brasil, also a Cielo shareholder, would be the recipient of the notes.

The placement of the notes, which will mature in December 2023, remains subject to the implementation of an 11.6 billion-real card processing venture between Cielo and Banco do Brasil, which was announced last month. Under terms of the deal, Cielo will handle the card processing activities of Banco do Brasil's Arranjo Ourocard unit.

Cielo will partially fund the purchase of its 70 percent stake in the venture through the issuance of the notes, a move that should double the company's debt.

Cielo will offer 2.359 billion reais of notes in the first portion, offering to pay interest equivalent to 111 percent of Brazil's benchmark CDI interbank offered rate through March 2015. The CDI is currently at an annual 11.60 percent.

The second portion, worth 700 million reais in so-called step-up coupon notes, will pay interest equivalent to 100 percent of the CDI rate through March 31, 2015. After that, the note will pay interest equal to 111 percent of the CDI.

Step-up coupon notes pay an initial fixed interest rate for a first period, and then a higher rate through maturity.

The third portion of 400 million reais has similar terms, only that the increase in the coupon rate will take place once a committee to temporarily oversee the venture is dissolved.

Shares of Cielo rose 0.9 percent on Wednesday to 40.25 reais. The stock is up 26 percent this year. (Reporting by Guillermo Parra-Bernal; Editing by W Simon and Diane Craft)