(Adds launch details, Fitch and banker comments)
By Paul Kilby
NEW YORK, April 25 (IFR) - Sigma on Monday became the first high-grade Latin American corporate to tap the dollar market this year, amassing more than US$3.5bn of orders for a new US$1bn 10-year bond.
Strong demand for the Mexican frozen food company, rated Baa3/BBB/BBB, allowed leads Bank of America and JP Morgan to launch the deal at 225bp, well inside IPTs of 262.5bp area and at the tight end of official guidance of 235bp area.
“It looks like a pretty aggressive print, but they are coming on the back of a week that enjoyed strong tailwinds from Argentina,” said a syndicate banker away from the deal.
“This is the first pure high-grade dollar deal out of Latin America all year.”
Blue chips names including telco America Movil and Femsa have raised euros this year, but Sigma is the first company this far up the credit spectrum to raise dollars, not counting quasi sovereign names like oil company Pemex.
Spreads on the new deal are coming substantially inside debt issued by Alfa, Sigma’s Baa3/BBB-/BBB- rated parent, which has 2024s trading at a G-spread of anywhere between 260bp and 265bp.
As the highest revenue generator among Alfa’s subsidiaries last year, Sigma had been expected to come tight to its holding company - but perhaps not quite as much.
“I see fair value at 237.5bp, so they will walk this thing in about 30bp,” one New York-based trader told IFR earlier on Monday.
Nor does Sigma appear to be offering much of a pick-up to other Triple B food companies in Mexico such as baker Bimbo (Baa2/BBB/BBB) and tortilla maker Gruma (BBB/BBB), whose larger US presence arguably justifies tighter pricing.
Their 2024s were respectively being quoted at G spreads of around 210bp and 215bp, levels that would put a new 10-year close to where Sigma came on Monday.
“If you look at higher quality corporates in Mexico, Sigma seems like a good print,” said the syndicate manger.
Sigma is also looking considerably expensive against credits outside of Brazil.
This includes BR Foods (Ba1/BBB/BBB), whose 2024s were spotted at a G-spread of 354bp, reflecting broader troubles in Brazil despite the credit’s popularity among investors.
Investors have also voiced concerns about Sigma’s FX exposure as it takes on foreign currency debt.
“It is a solid business, but what concerns me is that they won’t hedge (dollar debt) and about 50% of their business is in Mexico and Latin America,” he said.
Fitch thinks however that cash flows from foreign operations largely mitigate the risks of borrowing in US dollars and euros, which respectively account for 72% and 24% of total debt.
Sigma has US$450m and US$250m of outstanding 2018s and 2019s, as well as about US$561m equivalent in a euro-denominated 2022, according to Thomson Reuters data.
Proceeds will repay debt between 2016 and 2018, according to Fitch which sees total and net debt to Ebitda standing at 3.3 and 2.3 times by 2017 amid continued acquisitions.
Sigma bought a 37% equity stake in Spain’s Campofrio for US$345m last year.
That acquisition was initially financed by debt and had been expected to be taken out through an initial public offering, which has so far yet to occur.
“Fitch has factored into the ratings that Sigma will continue acquiring brands and that its net debt to Ebitda ratio will remain around 2.5 times or lower,” the agency said.
Sigma is expected to price later on Monday. Passive joint bookrunners are MUFG and Rabo Securities. (Reporting by Paul Kilby; Editing by Marc Carnegie)