NEW YORK, June 8 (IFR) - Brazilian airline manufacturer Embraer got the ball rolling in the LatAm primary markets on Monday with its largest ever bond -a US$1bn 10-year - despite a somewhat soft backdrop.
Heightened expectations of an imminent rate hike in the US following Friday’s strong payrolls report created a somewhat risk-averse tone in LatAm on Monday.
But with US Treasuries finding support in a flight-to-safety bid on ongoing fears about the outcome to Greek debt negotiations, Embraer saw its opportunity to pull the trigger on a bond that had been expected as early as last week.
Playing it safe with what was seen as generous initial price thoughts of 300bp over US Treasuries, the borrower was quick to tighten and launch at 270bp after books peaked at US$3.5bn.
In the end, the company was able to upsize from an initial US$500m-US$750m target range and price a US$1bn 5.05% bond at 99.682 to yield 5.091%, the tight end of guidance of Treasuries plus 275bp area (+/-5bp).
Final pricing was seen coming some 15-20bp over the 250bp-255bp G spread being quoted on its 2023s, but after accounting for a 15bp curve extension, one banker saw Embraer leaving little or no new issue premium on the table.
This follows a mixed day in the secondary markets with Argentine debt falling up to half a point on Monday.
While some put the price movement down to news late Friday that US District Judge Thomas Griesa had ruled that Argentina must pay US$5.4bn to so called “me-too” investors, others thought investors were focusing largely on political risks ahead of the upcoming presidential elections in October.
“The ‘me-too’ (investors) had precedent working in their favor,” said Jorge Piedrahita, CEO at brokerage Torino Capital. “So we were assuming that (Griesa’s decision) was a long time coming.”
Piedrahita argues that prices largely dropped on expectations that Buenos Aires Mayor Mauricio Macri - a market favorite - might fail to ally himself with Sergio Massa, weakening his hand in his bid for the presidency.
Discounts, Pars and Bonar 2024s were respectively ending the day at around 101.00-101.50, 59.75-60.25 and 98.875-99.375.
Meanwhile, neighboring Uruguay saw its bonds weaken despite S&P upgrading the sovereign to BBB from BBB-. Viewed as overvalued at current levels, Uruguay dollar debt was a perfect short, said some strategists.
Uruguay’s 2024s were being quoted at 105.375 on Monday, marking a one point drop since Thursday. “They are already trading flat to Mexico, which is an opportunity to go short,” said Siobhan Morden, head LatAm strategist at Jefferies.
Elsewhere in the secondary markets, Petrobras new Century bond tightened to end at 523bp-520bp, or at 82.00-82.50 on a price basis, a point up from reoffer.
Lima Metro Line 2 Finance Limited, established by a consortium of Peruvian and European sponsors, has selected banks for a global roadshow ahead of a potential 144A/Reg S USD bond sale of US$1.14bn of senior secured notes.
The issuer wrapped up roadshows today. Citigroup, Morgan Stanley and Santander have been mandated as global coordinators for the bond, which is expected to be rated Baa1/BBB/BBB.
Salvadoran bank Banco Agricola, rated Ba2/BB+, has mandated Bank of America Merrill Lynch and Deutsche Bank to take it on the road to market a 144A/Reg S senior unsecured bond.
The borrower was in London, Switzerland and Santiago today and will head to New York and Miami on June 9 and to Boston and New York on June 10. Banco Agricola is 97.35% owned by Bancolombia, which is rated Baa2/BBB-/BBB.
Brazilian telecoms firm Oi has started meeting bond investors ahead of a possible euro 144a/Reg S bond may follow. The Ba1/BB+BB+ rated firm has mandated BB Securities, BofA Merrill Lynch, HSBC, Santander, Bradesco BBI, Citigroup, Deutsche Bank, BNP Paribas, BTG Pactual and Itau BB to arrange the meetings. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)