Monday, 10 December 2018

Latin America Bond: America Movil’s US$2.8bn-equivalent three-tranche bond

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Marking a new first

America Movil proved itself to be a capital markets innovator once again in 2013, when the telecoms firm issued a US$2.8bn-equivalent three-tranche issue denominated in both sterling and euros. It was the first ever broadly distributed corporate hybrid from a Latin American issuer and the largest such trade done on an intra-day basis.

Bankers had been pitching America Movil on the idea for quite some time, but the need to issue this type of subordinated capital arguably took on a greater sense of urgency in September as ratings agencies fretted about the company’s leverage ratios ahead of a possible acquisition of Dutch rival KPN.

The KPN purchase in the end never took place. But the deal nonetheless ensured that America Movil fortified its capital base at a time of market concern, helping protect the company’s A2/A–/A credit ratings.

Indeed, the hybrid debt readies the company’s balance sheet nicely for further acquisitions and is likely to set a new benchmark for Latin American corporates that are increasingly on the hunt for M&A opportunities outside their borders.

“They made a strategic judgement on how to manage their business and balance sheet,” said Marcelo Delmar, managing director for DCM at BNP Paribas, which along with Barclays and Deutsche Bank acted as leads. “They were being very proactive and worked well with ratings agencies to take care of their senior debt and investors.”

Mexican company Cemex had previously experimented with its own brand of hybrids, as it sought to avoid breaching covenants with banks. But America Movil took such structures a step further, gaining a 50% equity treatment from ratings agencies.

The deal also needed sign off from local regulators. “It required talking to the Mexican CNV about what this type of subordinated debt meant and where to put it under law,” said Alberto Ardura, head of Latin America capital markets and treasury solutions at Deutsche Bank.

The hybrid tranches comprised 60-year issues – two denominated in euros callable in years five and 10, and a sterling issue callable in year seven – marking the first time a LatAm corporate had truly tested this asset class in size.

Timing was key. A window was open but would close quickly. Demand for higher-yielding hybrids was on the rise, most notably among UK accounts that had been staying clear of this asset class. But talk of a mega-bond from US rival Verizon was already spooking the market.

The company wasted little time, getting leads to quickly resolve structural issues and educate local regulators on this new asset class. Already known to many investors, America Movil was able to avoid a lengthy roadshow process and address investor questions through calls.

The non-call five instrument was priced at 99.463 with a 5.125% coupon to yield 5.25% (mid-swaps plus 385bp), the non-call 10 at 98.98 with a 6.375% coupon to yield 6.517% (plus 430bp). The sterling issue priced at 99.437 with a 6.375% coupon to yield 6.478% (plus 410p).

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