NEW YORK, March 12 (IFR) - Brazil and Argentina were the focus of attention for Latin American credits Thursday, as bonds from both sovereigns took a beating in a volatile session.
More downgrades for Brazilian companies connected to the corruption scandal surrounding Petrobras, and contradictory reports over the government's willingness to back financing for the oil company, created more uncertainty on the buy-side.
"We are at the lows and wides of the day," said a New York-based trader.
"It feels really bad in Brazil. Real money is looking to get out and we are seeing some capitulation from crossover accounts."
Petrobras 2024s and 2044s were closing about 18bp and 15bp wider at 534p-525bp and 534bp-524bp, while the Real hit a new 10-year high of 3.16 against the dollar.
Downgrades also pressured debt prices on rig-backed bonds issued by companies chartering to Petrobras.
Fitch downgraded Schahin's senior secured 2023s to BB- from BB+, Lancer Finance Company's 2016s to BB+ from BBB-, and QGOG Atlantic/Alaska 2019s to BB+ from BBB-.
The rating agency cited concerns that pressure to reduce capex spending at Petrobras may jeopardize charter agreements with these and other offshore oil companies.
Fitch has already downgraded Schahin Oil and Gas to B- from B+ with a negative watch on concerns about higher leverage and the company's ability to roll over debt maturities.
Argentina was also watching its sovereign curve give back some gains after US District Judge Thomas Griesa said today that Citigroup couldn't process payments on certain Argentina law bond denominated in foreign currency.
The move was a blow to investors who had bought such debt on the assumption that they would be beyond the reach of Griesa's pari passu injunction preventing payment on Argentina bonds unless holdout investors led by NML Capital were made whole as well.
"The court's ruling makes clear that any third party that attempts to help Argentina in the payment process is in violation of the court's injunction," said an NML spokesman said in a statement.
"Argentina should discontinue its defiance of courts and negotiate a resolution to this dispute."
Argentina local law discounts suffered the brunt of the sell-off, falling four points on the news to 93.70.
Prices were only marginally lower on New York law bonds, which have been on a tear this year as investors bet that October's presidential election will usher in a more market-friendly government.
New York law pars were down 75ct at 59.75, while discounts fell close to a point to 102.15.
Elsewhere sovereign bonds were holding their own, with the newly minted Panama 2025 closing at 99.60-100.00 after pricing yesterday at 98.857 to yield 3.889%, or 178bp over US Treasuries.
The Republic of Peru has hired BBVA, Deutsche Bank and Morgan Stanley to arrange meetings with fixed-income investors ahead of a potential bond issue, according to market sources.
The sovereign, rated A3/BBB+/BBB+, will meet investors in New York on March 16, Los Angeles and London on March 17, and Boston on March 18.
Ecuador could return to the international capital markets with a new US dollar bond sale as soon as next week, as it seeks to plug a widening budget gap in the wake of falling oil prices. Investor meetings took place in San Francisco today and will move to New York on Friday.
The country is looking to raise at least US$1bn, according to a source familiar with the transaction.
Peruvian state-controlled mortgage bank Fondo Mivivienda, rated BBB+ from both S&P and Fitch, has mandated Deutsche Bank and JP Morgan to organize a series of fixed-income investor meetings. The borrower was in Amsterdam today and will be in Paris on Friday. It will meet investors in Frankfurt on March 16.
Mexican media company TV Azteca is bringing to market a rare project bond related to the development of the Andean country's fiber optic network. (Reporting by Paul Kilby; Editing by Marc Carnegie)