The Latin American loan market has ostensibly held up well against this summer's credit crunch, with very little seepage from its neighbours to the north. But credit committees at large European and US banks are starting to ramp up the pressure and bankers are warning of tighter terms on the horizon.
In a market that is intensely relationship driven, LatAm bankers are perhaps finding it more difficult than most to explain the unpleasant new realities to clients who have become accustomed to benefiting from liquidity-laden bank markets.
Pricing is nonetheless likely to head northward. And while big name companies still hold sway, the days of downward flexes may well be over. Fortunately for many blue chips, testing the new pricing equilibrium is not on the agenda, mostly because they don't need to tap the markets.
Overall, the region's fundamentals are strong and corporate Latin America is in good shape. But with the bond markets essentially shut, borrowers that need funds are expected to look increasingly to the syndicated loan market, though this option may be confined to higher quality credits.
Recently accessing the market are top names such as Codelco, which is considered by many more as a global play rather than a pure LatAm credit. The Chilean state-owned copper giant in late August launched a US$400m seven-year amortising loan.
Other high-quality credits like Pemex and America Movil have also been active, though these have been essentially amendment exercises to existing structures rather than new issues. For instance, America Movil tweaked its US$2bn five year bullet loan to make it a revolver.
Pemex also nipped into the market before sentiment worsened when in early July it launched what was essentially seen as an amendment – a US$2.5bn unsecured revolver to refinance existing debt.
Deals continue to emerge out of the pipeline, with some expected to act as gauges for future market sentiment. Santander is currently syndicating what is thought to be the largest Mexican peso-denominated loan ever, a US$3.75bn-equivalent toll-road loan.
The package will help finance construction company ICA and Goldman Sach's US$4.02bn-equivalent winning bid for what is the first of a series of toll-road concessions to be awarded by rescue trust FARAC. More such loans are on the way.
But perhaps more mainstream and a better litmus test for market sentiment post US volatility is a US$2.75bn term facility from Brazilian steel concern Gerdau, which is being used to fund its US$4.22bn acquisition of Chaparral Steel.
This was the first Brazilian credit to emerge since the markets truly turned sour and bankers are monitoring it closely, though the fact that it is an acquisition loan may not make it a pricing benchmark for the entire market.
Bankers are wondering what will happen to the LBO and second-tier sector, which has been growing in recent years. Ceramic products company Lamosa successfully emerged with a US$900m package used to finance its acquisition of tile maker Porcelanite, with Ontario Teachers Pension Plan buying a portion of the deal.
Other such credits have had a tougher time. In mid August, Mexican retail chain Waldo flexed up its US$120m two-tranche loan, while homebuilder Javer was also rumoured to have shifted pricing on a three-tranche US$490m loan used to finance buyout firm Advent's acquisition of the company earlier this year.
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