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Brazil

Brazil: Marfrig's purchasing offer and new issue; reiterate mix of Buys and Holds

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    29 April 2019
    Published by

    On 26 April, Marfrig Global Foods (MRFGBZ) announced jointly with its subsidiaries Marfrig Holdings (Europe) and Marfrig Overseas Limited, the commencement of an offer for cash by HSBC Securities (USA) of:

    1) cUS$27.839mn (from an original issue amount of US$400mn) in 11.250% Senior Notes due 2021 (B2/BB-/BB-) issued by Marfrig Holding Europe B.  

    These bonds are currently trading at cUS$99.00 (TRACE) to yield c11.72% (G-Spread 944bps; Z-Spread 934bps). The purchase price for these bonds will be US$990.00 for each US$1,000 in principal amount plus an Early Tender payment of US$30.00 for a total consideration of US$1,020.00 per US$1,000.00 principal amount tendered.

    2) cUS$1.0bn in 8.000% Senior Notes due 2023 (B2/BB-/BB-) issued by Marfrig Holding Europe B. 

    These bonds are currently trading at cUS$104.248 (TRACE) to yield c5.25% (G-Spread 282bps; Z-Spread 259bps). The purchase price for these bonds will be US$1,010.00 for each US$1,000 in principal amount plus an Early Tender payment of US$30.00 for a total consideration of US$1,040.00 per US$1,000.00 principal amount tendered.

    The company started a roadshow today, which will conclude on 1 May when the bonds are expected to be priced. 

    According to a statement from Marfrig: "The offers will expire at 11:59 pm, New York City time on 23 May, unless extended or terminated earlier and are conditioned upon the pricing and completion of a simultaneous offering of  144A/RegS Senior Unsecured bonds, issued by NMB US Holdings, and guaranteed by Marfrig, Marfrig Holdings, Marfrig Overseas and MARB BondCo PLC (together “MARB”)." The bonds are expected to be rated BB-/BB- with intermediate maturity.

    The new offering, however, is not dependent upon the completion of the purchase offers or on any minimum participation by their holders.

    "Marfrig, Marfrig Holdings, Marfrig Overseas, NBM and MARB have consented to the purchaser making the offers. The bonds purchased in the offers will be exchanged by the purchaser with NBM for new bonds issued in the new offering by NBM to the Dealer Managers," the company stated. 

    In our view, the purchase of the bonds and the issuance of new debt securities are positive signs that the company is finally fulfilling its pledge to strengthen its balance sheet. By extending maturities and taking advantage of the "low coupon-environment" that we have seen recently (mainly due to the fact that new issues in Latin America were few and far apart), and combined with a strong appetite for both improving credit and the pursuit of yields, Marfrig might be able to effectively lower its overall cost of debt and alleviate any potential liquidity issues in the medium and long term.

    We reiterate our mix of Buys and Holds on the Marfrig family of bonds. We see the company benefiting from a positive domestic business outlook (fueled by expectations of economic growth) and its international operations (some of which may file for IPOs this year in order to deleverage the company's balance sheet). In addition, we expect Brazilian asset spreads to continue to tighten as Congress gets closer to passing the much anticipated Pension Reform, which we believe will prompt a strong rally across all Brazilian asset classes.