Obrascon Huarte Lain’s bonds are under pressure yet again, after the Spanish construction firm revealed it had to post more collateral against a Mexican margin loan.
OHL said on Friday that it had to set aside an extra 9.28% of shares in OHL Mexico to guarantee a MXP5.21bn (€312m) margin loan, taking the amount backing the loan to 33.53%.
OHL Concesiones agreed a €300m-equivalent three-year margin loan in Mexican pesos in September 2013, initially providing a 24.25% stake in OHL Mexico as collateral.
The margin call was triggered by a slide in the share price of OHL Mexico, which has become embroiled in a corruption scandal after recordings of individuals alleged to be OHL Mexico officials discussing overcharging for a public works project were leaked online this month.
OHL’s most recent bond, a €325m 5.5% 2023 note, fell from a cash price bid of 86.50 to just 84.00 by 0800 BST, according to an investor. On Tradeweb, it has fallen from 87.625 to 85.50. The bond began the week bid at 92.50, but took a hammering on news that the Mexican government will audit its contracts with OHL Mexico.
A high-yield bond analyst predicted that Mexican margin debt will continue to cause pain for OHL.
“At current levels, the loan is now at around 43% loan to value (LTV) and OHL Mexico’s share value has about 25% headroom for further declines,” he said. “Excluding the 17% OHL Mexico stake securing the convertible debt, I think the small remaining stake will probably need to be used, or has already has been used, to improve the LTV for a smaller €60m margin loan.”
OHL also has margin debt outstanding on its stake in Spanish infrastructure firm Abertis, which has also concerned some analysts. Ratings agency Moody’s placed OHL’s B1 rating on review for downgrade earlier this month, warning that “there is very limited headroom under the LTV covenant of the margin loan backed by OHL’s shares in Abertis”.
In 2012, OHL entered into a €1.1bn margin loan secured by its 13.9% holding in Abertis, which requires cash collateral if the share price drops below €15.105. Abertis shares were worth €16.100 at 0900 BST according to Thomson Reuters data.
OHL has taken steps to reduce the pressure from this margin loan, disclosing in its first-quarter results that it refinanced part of the debt in April with a new €273m loan without triggers. Instead, the loan is backed by a derivatives deal to protect the guarantee from swings in the company’s share price.
UBS provided the new loan and derivatives agreement. UBS was one of the three banks forced to price a March bond deal for OHL at a deep discount, as they underwrote it at lower yields than the market would accept, costing them up to €20m.
(A version of this story will appear in the May 30 issue of the International Financing Review)
