March 21, 2019 / 8:41 PM / 6 months ago

LatAm’s top borrowers seize cheap loans as banks starve for dollar deals

NEW YORK, Mar 21 (LPC) - Latin America’s most well-known corporate borrowers are increasingly tapping the bank loan market for low-cost funding, finding an international lender base hungry to deploy capital and grow their dollar exposure to the region.

Banks active in lending to Latin American corporates including oil producer Petróleo Brasileiro (Petrobras) and pulp and paper exporter Suzano Papel e Celulose are resorting to aggressive pricing strategies this quarter as competition has increased for the limited available supply.

Deal-starved international financial institutions are hamstrung by the lack of dollar-denominated transactions in Latin America when compared to volumes in developed markets such as the US or Europe. Active lenders are continuing to jockey for position to lead high-profile financings, even if it means lower-cost funding for borrowers.

“There are many transactions, some in local currency with local banks, but these might be more risky and international banks cannot fund these,” said a director at an international investment bank active in Latin America. “Universal deals [in hard currencies such as dollars] that can be done by international banks are limited, which makes it competitive.”

Petrobras and Suzano, which are well-known companies for US investors, have soaked up much of the low-cost liquidity on offer so far this year.

The state-backed oil producer is currently in market with a potential US$3bn-US$3.5bn syndicated loan and will pay 150bp over Libor, 20bp less than the US$4.35bn revolving credit facility Petrobras signed in March 2018. Citigroup, Crédit Agricole, JP Morgan, Mizuho and Scotiabank are syndicating the transaction.

Suzano signed this month a US$500m five-year club loan with Bank of America Merrill Lynch, BNP Paribas, HSBC, Mizuho, Santander and Scotiabank that priced at roughly 100bp, according to three bankers familiar with the transaction.

Comparatively, in March 2018 the company tapped the bank market for a US$9.2bn two-tranche financing to back its acquisition of local peer Fibria. Suzano signed a three-year loan priced between 116bp-133bp and a six-year transaction between 165bp-175bp, depending on the company’s leverage level. BNP Paribas, JP Morgan, Mizuho and Rabobank arranged last year’s acquisition financing.

Heightened competition and limited supply, combined with banks’ liquidity continue to contribute to lower overall pricing for syndicated loans, particularly for corporates in or close to high-grade territory. Brazilian companies, for example, can access spreads over Libor typically reserved for credits in investment grade-rated countries despite Brazil’s below-investment grade sovereign credit rating of Ba2/BB-/BB-.

Banks willingness to lend in Brazil also coincides with the country’s new right-wing administration, which is championing investor-friendly policies such as the privatization of state-run assets and pension reform.

Other Brazilian borrowers, including fuel station operator Raizen and another pulp producer Klabin, also tapped low cost bank debt from international banks this year, paying 105bp for a five-year US$500m package and 135bp for a US$1.1bn five-year facility, respectively. BNP Paribas, JP Morgan, Mizuho and Scotiabank are arranging the facility for Raizen while Citi, HSBC, Mizuho and Santander led the transaction for Klabin.

Demand is not just limited to Brazil. Colombian energy company Grupo Energía de Bogotá (GEB) this month extended a five-year US$749m bank loan to mature in 2024 from 2022 and also reduced the price of the facility to 162.5bp from approximately 215bp when the loan was negotiated in 2017, two loans bankers familiar with the deal said.

Chilean miner Minera Los Pelambres signed a US$1.3bn funding package with lenders this month. Private banks led an US$875m seven-year tranche for 120bp over Libor, while the rest came from the Japan Bank for International Cooperation.

“Banks have had so much pent-up demand for the region,” said a managing director that covers corporate lending in Latin America. “So when a deal launches, they are just flying off the blocks.”


Syndicated loan issuance in Latin America swelled above US$40bn for 2018, the highest figure since 2007, according to data from LPC, a unit of Refinitiv. Deal flow was driven mainly by large-scale acquisition financings such as Suzano’s purchase of rival pulp company Fibria and billion-dollar credit facilities from the likes of Petrobras and petrochemicals company Braskem, among others.

A weaker bond market, hindered by global volatility in 2018, also propped up volumes last year as corporates turned to less-volatile syndicated loans.

Despite the record volume, Latin American dollar-denominated loan supply pales when compared to international banks’ liquidity throughout the region, making lending highly competitive among bankers.

At any given time, there are rarely more than a handful of transactions that global banks’ credit committees will approve, according to the investment bank director who spoke on the condition of anonymity as transactions are private. And while bankers stopped short of dubbing the region ‘over-banked,’ the lack of supply can give off a perception that Latin America is saturated with international banks.

As momentum returns to Latin America’s international bond market, there is doubt that loan issuance volumes will reach the heights of 2018, according to several banking sources. But reputable corporate borrowers comfortable with three-, five-, or in some instances, seven-year maturities, are still expected to continue to find a cheaper source of capital in the bank market. (Reporting by Aaron Weinman; Editing by Michelle Sierra and Lynn Adler)

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