(Adds pricing details, investor comments)
By Davide Scigliuzzo
NEW YORK, Feb 11 (IFR) - Investors piled into a new US$500m bond from the City of Buenos Aires on Wednesday, hoping to reap hefty gains if and when Argentina mends fences with international creditors.
Argentina’s capital city amassed around US$2bn in orders for the six-year amortizing bond, which priced at par to yield 8.95%.
That was roughly flat to Argentina’s own curve and clearly piqued buy-side interest, taking into account the city’s stronger financial position and better credentials as a debtor.
“It is still attractive considering that the sovereign could tighten significantly post-settlement (with holdout creditors),” said a New York-based hedge fund manager.
“(The city’s bonds) could go back to trading 100bp-200bp tight to the sovereign.”
Still not all investors are convinced that now is the time for a debt play in Argentina, where the debt market has already rallied on hopes of a more market-friendly government come presidential elections in October.
“For me, Argentina is too expensive at the moment,” said one London-based portfolio manager who did not participate in the deal.
“We have had a very nice rally in Argentine assets, but you still need to see a resolution (with holdouts) for yields to come in.”
Faced with some investor pushback, Buenos Aires was forced to make some concessions on structure, opting against the inclusion of a call option that would have allowed officials to redeem the notes as soon as 2017 at a pre-determined price.
“Clearly there was a lot of resistance,” said the portfolio manager.
Final pricing came at the tight end of guidance of 9% area (+/- 5bp) and tight to initial price thoughts of 9.25% area.
The country’s local-law Bonar 2024s, which have an average maturity falling in 2021, were quoted at a yield of 8.8% mid-market on Wednesday morning, according to a New-York based broker, while the shorter-dated 2017s were spotted around 9%.
The new notes will have final maturity in 2021, but amortize in three equal installments over the least three years, for an average life of five years.
Fund managers took up the vast majority of the new issue, accounting for 76% of the allocation, followed by hedge funds with 17% and banks and private banks with 7%. Around 82% of the paper went to US investors, while European accounts took 18%.
Bank of America Merrill Lynch, HSBC and JP Morgan were the bookrunners on the deal, which is expected to be rated Caa2 by Moody‘s, CCC- by S&P and CCC by Fitch. (Reporting by Davide Scigliuzzo; Additional reporting by Paul Kilby; Editing by Marc Carnegie)