(Adds comments from the company)
By Paul Kilby
NEW YORK, Jan 11 (IFR) - Brazilian pulp and paper company
Fibria dropped controversial language on a 10-year Green bond on
Wednesday amid strong investor pushback, sources told IFR.
Fibria was one of several companies this week to drop the
aggressive terms, which make it easier for borrowers to breach
covenants without offering investors compensation.
Fibria's Treasurer Marcelo Habibe told IFR that lawyers had
suggested including the new language as part of the "natural
process of improvement in the documentation for investment grade
But with key accounts refusing to place orders if the terms
remained, Fibria saw no benefit in keeping the contentious
wording especially if it impacted demand, and perhaps pricing.
"That's why we decided to take it out," Habibe said. "If
those big investors who said they were uncomfortable with the
clause hadn't placed their orders, we probably would have (got)
a worse price."
Leads on the Fibria deal told their sales forces to inform
investors that the language would be removed and this would show
up in the final pricing supplement, said a source with knowledge
of the deal.
Aside from Fibria, Brazilian bioenergy company Raizen and
the Santiago Metro have also included such language in bonds
being marketed to investors this week, according to Covenant
"We don't want this to become standard language because it
takes away some big protections for bondholders," said Dan
Senecal, an emerging market credit analysts and portfolio
manager at Newfleet Asset Management.
"There is going to be a lot of push back on it from the
Ultimately leads were able to ratchet in pricing a good 30bp
from start to finish, with orders reaching around US$2.5bn by
early Wednesday, according to one investor.
In the end, the US$700m deal was priced to yield 5.70%, the
tight end of guidance of 5.75% area (+/- 5bp) and well inside
initial price thoughts of very low 6%.
Final yields fell in line with the 5.60%-5.70% fair value
calculated by one banker who spotted the outstanding 5.25% 2024s
Some investors, however, sought higher levels from a company
that is border line junk. It is already rated Ba1 by Moody's and
has a negative outlook from S&P, which rates the company BBB-.
While Fibria is broadly seen as a strong credit, some
investors thought a better comp was the lower rated Brazilian
pulp and paper name, Suzano Papel e Celulose.
"If Fibria gets downgraded, you might as well buy Suzano,
though Fibria is a lower cost (pulp producer) and less
volatile," said an investor.
Suzano, which is rated Ba1/BB+/BB+, has a 2026 Green bond
trading at 6.24%-6.10%, according to Thomson Reuters data.
(Reporting by Paul Kilby; Editing by Natalie Harrison and