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Wednesday, 22 November 2017

Latin America Loan: Sociedad Minero Cerro Verde’s US$1.8bn term loan

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Latin America’s loan market finally turned a corner in 2014 as borrowers took advantage of a new wave of liquidity into the asset class. Sociedad Minero Cerro Verde epitomised that best of all with its US$1.8bn five-year term loan.

Not only was the deal one of the largest unsecured financings for a single-asset mining company in Latin America, but it was also the biggest syndicated loan by a Peruvian borrower in recent years.

Marking a turning point in what has become an increasingly borrower-friendly market, the Cerro Verde loan saw a total of 22 institutions come on board before it closed in March, including what was then a rare appearance from Intesa Sanpaolo.

Starting with an initial US$1.3bn size, the transaction increased as banks from Asia, North America, Europe and Latin America took a shine to a rare asset out of Peru and one that is majority owned by Freeport-McMoRan Copper and Gold.

Strong ownership – which also included Sumitomo Metals & Mining and Peru’s Minas Buenaventura – strengthened comfort levels at a time when concerns about Chinese growth left many doubtful about the strength of commodity prices and the logic of extending credit to mining names.

“There are not many transactions from Peru and not many of this size, so when they see the opportunity it is great diversification for banks,” said Monica Macia, head of syndicated loans, Latin America, at HSBC, which acted as joint lead arranger and bookrunner along with Bank of Tokyo Mitsubishi UFJ, BNP Paribas and Citigroup.

The abundance of liquidity in a bank market that has seen the return of several European players – and the lack of quality LatAm assets – worked in borrowers’ favour in 2014, as lenders showed a greater willingness to be more compliant on tenors, pricing and terms. Pricing, based on a leverage grid, was 190bp over Libor out of the box.

“This was one of those deals that got a lot of attention,” said a banker involved in the transaction. “It was a surprise to the market that so much could be raised, and it set the tone and showed this wasn’t a liquidity fluke.”

With so many banks willing to participate, Cerro Verde also managed to secure a 24-month delay draw period, which is unusual among banks that typically cap such periods to three months or, if the market is particularly frothy, at six to nine months.

“What made this attractive was that it was funded, but what made it challenging was the two-year delay draw period,” said Richard Cook, managing director at Bank of Tokyo-Mitsubishi UFJ.

To see the digital version of the IFR Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.

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