NEW YORK, Dec 1 (IFR) - Bonds issued by Brazilian miner Vale widened on Tuesday as officials in New York fended off questions about the financial impact of the recent dam burst at joint venture Samarco.
The company’s curve closed the day about 10bp wider, with its 2022s and 2036s trading at around 550bp and 680bp over US Treasuries respectively.
At Vale Day presentations in New York, CFO Luciano Siani put the financial impact from the dam disaster at Samarco - a joint venture between Vale and BHP Billiton - at around US$443m.
But longer-term liabilities and the extent of any potential support from shareholders remained unclear.
Fitch placed the miner’s current BBB+ status on rating watch negative Tuesday, citing the uncertainty over how the dam accident might impact Vale’s credit profile.
The rating agency said it thought “the high economic value of Samarco to be a major incentive in possible future financial support from shareholders”.
The Brazilian government filed a lawsuit this week against both BHP Billiton and Vale for US$5.2bn-equivalent to clean up what it described as the country’s worst environmental disaster, Reuters reported on Tuesday.
“We have not been served with that potential lawsuit,” said Clovis Torres, Vale’s general counsel.
Samarco debt meanwhile hit an alltime low Tuesday, according to one New York-based trader, with the 2024s quoted around 32.00 after Fitch cut its ratings four notches to BB- from BBB+
The rating agency warned of a possible breach of financial covenants if there is an absence of cash flow generation from a company that could stop operations for two years.
“Samarco is a company that can meet its obligations,” said Torres. “Should they not have that ability, they can appeal to shareholders.”
Fitch said Samarco has sufficient liquidity to service debt in 2016 and 2017, but it may need additional support from shareholders if further penalties from the disaster appear.
The Samarco incident comes at a tough time for Vale, which was already adjusting to the impact of this year’s dramatic drop in commodity prices.
Vale enjoyed more than US$5bn in sustainable savings this year, not all of which was from the weakening Real, said Siani.
“It is a new era for the company in terms of capital expenditures,” he said, adding that yearly investments will fall into the US$3bn-US$3.5bn range.
Argentine oil company YPF is approaching investors with a price of 103.73 for an up to US$100m tap of its 8.875% 2018s, with pricing expected on Wednesday. Itau is sole lead.
Arcos Dorados, the largest McDonald’s franchiser in South America, held a Swiss roadshow last month via Credit Suisse. The Argentina-based, NY-listed company is rated Ba3/NR/BB+.
Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.
Brazilian airline Gol (B3/B-/B-) has completed roadshows with Morgan Stanley, Credit Suisse and Citigroup. (Reporting by Paul Kilby; Editing by Marc Carnegie)