Brazil’s Unigel Participacoes S.A., through its special purpose vehicle Unigel Luxembourg S.A. (UNIGEL), is expected to come to the market with a new senior unsecured bond maturing in 2026 (7-years) and with an issue amount of up to US$500mn. The bond is expected to be rated B+/B+ and the use of proceeds will be to tender any-and-all of its outstanding US$200mn, 10.50% senior secured bonds (B+/B+), that are currently trading at cUS$108.352 (ALLQ) to yield c8.17% (to worst) for a g-spread of 655bps and a z-spread of 660bps.
The new issue is expected to price on or around 24 September when the company’s roadshow is due to end. The issue will be guaranteed by Unigel and its operating subsidiaries Acrilonitrila do Nordeste S.A., Companhia Brasileira de Estireno, Proquigel Quimica S.A. and Plastiglas de Mexico S.A. de C.V.
We see this as a meaningful pricing factor, which should result in a concession for investors willing to switch from a secured to a senior unsecured bond. Given where the existing bond is trading, and its 3.586 years duration, we would expect the new issue to come in the high 9.0% area.
According to Fitch, once the transaction is concluded and secured debt prepaid, Unigel’s debt should mostly represent an unsecured profile. Fitch has assigned B+/RR4 ratings to the new bonds. According to a statement from Fitch, “Unigel’s ratings reflect its small business-scale relative to larger and more diversified global petrochemical peers and its position as a price-taker. The ratings also factor in the cyclical nature of the industry, which is partially offset by a degree of vertical integration within both the acrylics and styrenics businesses. The ratings further reflect how a good part of Unigel’s sales are through long-term contracts with price formulas based on raw materials. In addition, the ratings reflect Unigel’s operational flexibility, established market position in Brazil, diversified portfolio of customers and key end-markets.”
Fitch’s base scenario forecasts net debt/EBITDA ratios moving to c2.7x-3.1x during 2019-2021, and considers additional capex during the period of cBRL200mn for a new sulfuric acid plant and a more challenging scenario of petrochemical spreads during H2 19 and 2020.
The above capex requirements for the company’s expansion explain the difference between the outstanding amount of the US$200mn bond and the expected US$500mn new issue. We currently do not have a rating for Unigel.