Latin American Loans Roundtable 2007

Rodrigo Gracia - CalyonGracia has been director in Latin American loan syndications group at Calyon since October 2004. Prior to that, he was a vice-president in the Latin America debt capital markets group of Dresdner Kleinwort Wasserstein, which he joined in 2002. Gracia also worked as an associate at JPMorgan Chase’s global syndicated finance division, where he was involved in structuring and executing syndicated loan transactions in the US and Latin America. Katia Bouazza - HSBCBouazza is head of syndicated finance, global debt capital markets, Latin America. Bouazza has over 12 years experience in the bond and loan business globally. She has been at HSBC for the past 10 years, mainly specialising in emerging markets origination with a focus on Latin America and previously Asia. Michael Jakob - Credit SuisseJakob is director within Credit Suisse’s emerging markets fixed-income division with responsibility for loan syndications in Latin America. He has worked in emerging markets for over 10 years in a retail and syndication function. Prior to joining Credit Suisse, he worked at BayernLB and Deutsche Bank. Eugenia Wilds - Deutsche BankWilds is head of Latin American syndicated loan origination at Deutsche Bank. Prior to joining Deutsche she was head of emerging markets loan syndicate at DrKW and previously head of Latin American loan syndicate at JPMorgan. Helena Radzyminski - Standard BankRadzyminski is head of loans sales Latin America for Standard Bank. She is regional head of primary and secondary loan distribution and works in co-ordination with other regional heads on international placements of syndicated loans and trade finance. Prior to joining Standard, Radzyminski was head of loan syndication at Fleet Bank and before that she worked at Citibank Argentina. William Donovan - SantanderDonovan is head of Latin America loan syndications at Santander Investment, where he bas been since December 1997. He has 35 years experience in the fixed-income markets, with the last 20 being dedicated to international investment banking. Prior to joining Santander, he worked at Kidder Peabody and UBS Securities. Ricardo Rubio - JPMorganRubio is vice-president, debt capital markets, Latin America at JPMorgan. He is focused on primary and secondary distribution of Latin American loans. Prior to joining Chase in 1998, Ricardo spent 10 years at the Bank of Nova Scotia and its predecessors. Michael Lopez - INGLopez joined ING’s Americas syndicated finance group in 2007 and is primarily responsible for the distribution of transactions in Latin America and the United States. Prior to ING, he was principal at BBVA in charge of originating, structuring and distributing syndicated loans for Latin American clients. He also worked in a variety of functions ranging from credit risk analysis and corporate ratings at S&P. Jorge Wilmer - UnicreditWilmer is managing director, emerging debt capital markets, Latin America at Unicredit. Wilmer is responsible for Unicredit’s (formerly HVB) markets and investment banking business in Latin America. He was recruited by HVB in 2000 to establish and build out the structured syndicated finance efforts for Latin America. Prior to joining HVB, he worked at JPMorgan and BHF-Bank AG. Marcia de A Vorona - ABN AMROVorona is director, structured lending loan origination and syndication for Latin America at ABN AMRO. She is responsible for originating, structuring and distributing loans for Latin American borrowers. Prior to holding her current position, Vorona worked for 10 years at ABN AMRO Brazil, mainly in trade and structured trade finance. She was transferred to New York in 2000 to work on trade credit distribution and LatAm loan syndication. Alonso Molina - BBVA SecuritiesMolina is head of syndicated loans Americas at BBVA Securities, where he has been since 2001. Previously he worked in the infrastructure and project finance team at BBVA Bancomer in Mexico. Paul Kilby - Assistant editor, IFR Michelle Sierr

IFR: What about retail banks' participation in the region. I understand some didn't renew during the recent Pemex amendment. Is retail pulling back from the region and if so how important is that? Rubio: Well maybe with the any new repricing, they will come back and be more active now. Gracia: Many of the retail banks walked away from the region probably last year, or slightly before that, when prices started to get extremely tight. The tendency of price tightening continued into probably the beginning of the second quarter of this year. And as Ricardo mentioned, I think they’ll probably look at the region again, if pricing gets to a level where they feel comfortable with their return models. IFR: We have seen a couple of deals flexed up over the last months or so. Will we see more of this or were these deals peripheral ones and didn't represent what is really happening in the market? Bouazza: I would be careful implying that prices are going to go up, because I think there are certain deals that were challenging even before the market took a turn. If you were talking about the top two or three credits in each country, there's a huge resistance to go up in price, and there’s still pressure on the banks to lower the price on whatever outstanding issues are there. So I do not expect prices to easily go up. There's maybe now a valid resistance level for them not to go down. But I wouldn’t rush [to that conclusion]. America Movil's pricing is staying the same, even though they're doing a revolver today versus a term loan. And so that’s not going to change. What is going to change is you’re going to have maybe more muscle power in, say, acquisition finance. Or in the case of an issuer that isn't one of the country's top borrowers, you may see pricing adjusting some. And obviously, the second-tier borrowers, you’ll be able to get more out of there. But let's just be careful. I don’t think Codelco, Pemex or America Movil expect their prices to change. Wilds: But I think you need to be very careful, because they're not really coming to market. Pemex's timing was impeccable. They were in and out of the market before this really hit, and American Movil is not talking about raising new money; its deals is just an amendment. It’s really almost a technical amendment. None of the banks in this room funds themselves today at Libor plus an eighth. And so it’s very difficult to understand how you’re going to commit to lend for five years at Libor plus an eighth. Lopez: That’s the thing. It's liquidity, which is an issue. Holds become more important. But I agree. Obviously, these top names want to keep getting the same price they've always gotten, because nothing has happened to them. Wilds: But they won't come to market. Gracia: And many of these banks are loaded with a lot of paper from these top names. So you will go back again to the liquidity issue. And in addition you have no retail for many of these top names and that’s going to raise the pricing. Lopez: I don't disagree with what Katia said. But in the face of your borrower, it's a very difficult slog to get that through to them. So one of the ways that you can maybe get away with it is with higher final holds. And, as was discussed earlier, some of these other structural enhancements like market flex, which you haven't seen in Chile for six or seven years. If that's back on the table, I think there are people in this room that are willing to take that gamble and see how it goes. Gracia: I think the market flex is very tricky because. My theory is you should price to where it clears the market, not price to apply the market flex if the deal fails. And probably that’s a bad perception that many banks might have when applying the market flex, or when having a market flex on a term sheet. You might price and have the market flex as a get out, but I think you should price to clear the market and have the market flex in case something worse occurs that you were not anticipating. Molina: That

IFR: What other sectors are particularly sensitive to the economic cycle and might undergo a rebalancing in their pricing equilibrium? Rubio: I think construction, down the road, maybe. We’ll see. IFR: What have been the benchmark transactions so far this year and which ones will be a gauge for sentiment in the second half? Rubio: Well, I guess you have the Farac [the US$3.7bn peso-denominated syndicated loan via Santander that will be used to fund construction company ICA and Goldman Sach's US$4.02bn winning bid for what is the first of a series of toll-road concessions to be award by Mexican rescue trust Farac]. That is definitely going to set the pace, in many aspects, because it’s infrastructure finance. Personally, I think it’s very well structured. They are looking for a number of lenders, whose natural market is not the peso market. So that’s going to be really interesting. It will be a new benchmark at least in Mexico, not only in terms of syndicating deals with Mexican base lenders, but this might open up opportunities for bringing in a bunch of international players to fund in pesos. That says a lot about the strength of the Mexican currency. Donovan: It will also be a test on how well the swap markets work, and the depth of the swap markets. They are going to rely quite a bit on that. Jakob: I would somewhat disagree that this sets the tone for the market. There are so many unique aspects to the Farac deal that it’s almost like an event unto itself. Gerdau's US$2.75bn term facility [which will help fund its acquisition of Chaparral Steel] is more indicative of what is happening. It is much more mainstream. I look at the Farac deal as unique as it is a toll-road transaction in pesos. Yes, it will be a benchmark in whatever form or shape its gets done. It will say something about a very specific market. But in the broader market, the tone is being set more by what you have going on in the general market such as Gerdau. Gerdau is the first time that you’ve actually seen a deal coming out of Brazil where prices are higher than in previous deals. Vorona: I think Gerdau is based on CVRD, and the bridge exercise and the export finance was all based on the size of the facility, which was very big. So in that sense, the pricing was also adjusted. It was considered a good price for CVRD. And Gerdau is pretty much the same. It's a pretty big deal, and of course it is based on CVRD's structure, except that this time around, instead of doing the bridge followed by the takeouts, we decided to do the bridge and the permanent financing at the same time. That is also very helpful for the rating agencies, and the possibility of whether or not they will downgrade the company. But yes, I think that Gerdau is definitely a benchmark, but led by CVRD’s experience. Jakob: Yes I agree, but it is more directional in terms of pricing parameters, and so on. Bouazza: I think you’re right. All eyes are on Gerdau, just because of timing and this is the first deal of size. Donovan: Yes this is the first sizable deal since we have had this disruption in the market. Rubio: As Katia and Marcia are saying, it’s a unique situation due to this moment in the market. Obviously if the circumstances were different the price would be different as well. Bouazza: Part of what we’ve seen before the market disruption is that acquisition-led financing is always going to receive a different type of pricing structure, because you are doing it under a different time frame, different circumstances, and different amounts. Now relatively speaking US$2.75bn is not a big size when compared with CVRD, but it is big for Gerdau. The last loan we did for them was US$400m. You do have the market element, but I think this is a deal structured for today. I don’t think that necessarily it’s a deal where we felt we needed to add so many basis points to make it today's new pricing. So that’s the little distinction. It’s priced for an acquisition finance, for sure, and that’s where

IFR: What is the outlook for the rest of the year? What impact is the current credit crunch likely to have on the Latin American loan market? Alonso Molina (BBVA): I think so far it is difficult to determine exactly what is going to be the impact in the medium and long-term in Latin America. But I would like to underline two points. The first one is that investors are increasingly starting to differentiate among asset classes. And Latin America has not been hit or at least the market has not been closed as far as we can see. There are some deals in the market right now, and they are going well. The second thing is if the bond market continues to struggle, definitely the syndicated loan market will continue to be a reliable source of financing for Latin American companies. So in that way, I think we’re going to see how it changes in terms of pricing, structure and tenors. But definitely it will be a source of financing for companies. Michael Jakob (Credit Suisse): I think one thing is clear: the market continues to be open, but certainly pricing is finding a new equilibrium. I think it has yet to be determined where the supply and demand equilibrium is going to end up, even it is for the simple fact that for a lot of banks the cost of funds have gone up. That will have the most immediate impact that leads to higher pricing. I think the most notable outcome is that prices are moving, probably for the first time in a long time, and I would say in the right direction, but certainly northward. There is not that ongoing pressure to lower pricing. Rodrigo Gracia (Calyon): Banks are closely monitoring all the transactions that are about to be launched, or have just recently been launched, because they will be the indicators, or benchmarks, that will be a gauge of what will happen for the rest of the year. We will see if those prices clear the market, and if those transactions will be the benchmarks we will use for the rest of 2007. Eugenia Wilds (Deutsche Bank): Michael's point about cost of funding for banks is an extremely interesting one. It's probably the first time that there has been a material impact in cost of funding across all geographies, not just Latin America. Interestingly, it's not just a US phenomenon – it's a European phenomenon also. And to the extent that pricing in the region has always been much closer to the European benchmarks than the US benchmarks, where there is not nearly as much transparency as the US market, it will be very interesting to see where pricing shakes out. Helena Radzyminski (Standard Bank): I think what helps the region, compared to previous crises, is that Latin American fundamentals are strong. Hence you haven't seen a big effect so far compared to other crises when Brazil and Argentina were impacted quickly. So that is helping the region. IFR: Are the large US and European banks really making that distinction and not painting the markets with just one brush? Are strong fundamentals really helping? Radzyminski: I think it helps. Compared to Eastern Europe in emerging markets, I think they’re suffering much more than Latin America right now. William Donovan (Santander): You know the only country that really has been affected through this, as would've happened five years ago, has been Argentina. You haven't seen this in Brazil nor of course Chile. Ricardo Rubio (JPMorgan): Most of the credits we're looking at in the market are very strong. The companies are in very good shape. That's totally different from say ten years ago, when companies were more leveraged, and that is helping. On the one hand you have strong fundamentals, and on the other, you have good credits out there. It would be interesting to see what would happen if you put a very leveraged credit in the market because banks are being more cautious than they were three or four months ago. Banks are very concerned about final holds and are scrutinising credits more. I guess all of us are being asked more questions than we normal. It'