Flash Fixed Income Report /

LatAm: Moving on to high-yield bonds

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    29 January 2020
    Published byTellimer Research

    Peru's Camposol and Colombia's Grupo Aval came to the market with two new bonds yesterday, continuing the flurry of LatAm corporate issues this year that does not seem to be slowing down. With these new bonds, the market seems to be moving away from only high-grade, very tightly-priced issues (mostly from Chile), to somewhat "yieldier" bonds – some of them high-yield-rated – and from other countries in the region.

    Camposol (CSOLNO) issued a US$350.0mn, 6.0% senior unsecured bond due 2027 (Ba3/NR/BB-) at a re-offer price of US$98.878 to yield c6.20%. The company is a vertically-integrated global agro-industrial company with operations in Peru, Colombia and Uruguay, and has full internal control of its supply chain from farm to supermarkets (it is also Peru's largest shrimp farmer with farms in Marinasol). 

    The initial price guidance for the bond had been "in the high 6.0% area" that was then revised to the "6.375% area (+/-12.5bps)", but with the final order books in excess of US$1.8bn, the company was able to print within the lower-end of the reviewed levels. Even at the final price, we still consider the bond attractive given the company's positive business outlook and the positive fundamentals of the countries it operates in. The proceeds from this bond will be used to refinance a majority of the company's existing debt and to fund capital expenditures. The bond has an Equity Claw of up to 40% of outstanding principal. We expect strong demand to continue in the secondary markets and can see spreads tightening another 25-50bps in the coming weeks.

    Elsewhere, Grupo Aval Acciones y Valores S.A. (AVALCB), issued through Grupo Aval Ltd., US$1.0bn in 4.375% senior unsecured bonds due 2030 (Ba2/NR/BBB) at a re-offer price of US$99.432 to yield T+280bps (when price guidance had been T+290bps +/-5bps). Grupo Aval is Colombia's largest financial group (through its network of banks including Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas), a leading investment bank through its Corficolombiana subsidiary, and the country's leader in the pension segment through Porvenir. It is also a leading financial institution in Central America with operations in Costa Rica, Guatemala, Panamá, El Salvador, Nicaragua and Honduras. 

    The proceeds will be used for general corporate purposes, including investing in additional tier-1 or other hybrid capital securities issued by Grupo Aval's subsidiaries in Colombia or Central America. While we believe that this bond might not look as attractive as Camposol's (this is, after all, a high-grade bond), final order books exceeded US$2.8bn, suggesting that these bonds will see active trading and strong demand in the secondary market that should result in a slight spread compression (which we believe could be between 10-15bps in the next few weeks).

    These bonds and the size of the order books demonstrate to us that the appetite for LatAm paper remains robust. Investors have so far had a busy start to 2020, and we think that's a good thing.