7 de agosto de 2015 / 18:23 / en 2 años

LATAM WRAP-Brazil credit off lows in illiquid market

NEW YORK, Aug 7 (IFR) - Brazil debt prices were off their lows Friday after a dramatic sell-off in the previous session, but traders see little upside after a tough week for the region’s largest economy.

Bonds issued by Petrobras - the oil company at the center of a high-profile corruption scandal - continued to struggle following the release of weak 2Q results late Wednesday.

The company reported a dramatic drop in profits for the quarter to R$532m from R$4.96bn a year ago as new management looks to clean up the balance sheet distorted by alleged corruption practices.

The Petrobras board authorized the spin-off of its fuel distribution unit earlier this week as it seeks ways to control a growing debt burden.

Proceeds from the IPO of a company valued at around US$10bn would go to the parent and not BR Distribuidora, according to Reuters.

The Petrobras 2024s were being quoted some 8bp wider on the day at 568bp-561bp, underperforming sovereign debt that was off its lows for the day.

Brazil’s benchmark 2025s were spotted at around 92.875 after opening around 91.25, while five-year CDS was trading at around 334bp after hitting as high as 340bp, according to one trader.

Brazilian bond prices have suffered a volatile week after many investors threw in the towel on a sovereign expected to be demoted to junk over the next year.

A lack of liquidity during the summer months, combined with dealer unwillingness to take on Brazilian risk, has only exacerbated price movements, the trader said.

“Banks have stopped providing liquidity in Brazil so it is getting more difficult to find bids,” he said. “(As a result) smaller prints are getting hit and repricing the market lower.”

The one bright spot in the Brazilian corporate complex was BRF, which Fitch upgraded on Friday to BBB from BBB-.

As justification for the move, the rating agency cited significant progress in cost-cutting, improved cash flow and stronger credit metrics.

The company, one of the world’s largest poultry producers, was sitting on about R$4.6bn of cash versus R$2.1bn in short-term debt as of June 30, with net leverage expected to stay below 1x this year, Fitch said.

BRF’s 5.875% 2022s were edging higher following the upgrade to hit 107.875 on Friday, though that is still off recent highs of around 113.50 seen in late May. (Reporting by Paul Kilby; Editing by Marc Carnegie)

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