Flash Fixed Income Report /

Mexico: Docuformas new issue IPT in the high 10%

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    17 July 2019
    Published by

    Mexican non-bank bank Docuformas, S.A.P.I. de C.V. (DOCUFO) – a leasing, factoring and credit financial institution – is expected to come to market, as we reported, with a US$300mn senior unsecured bond, five-year maturity (non-call three) and an initial price talk (IPT) in the high 10.0%. Pricing is expected as early as today.

    The proceeds of this issue are expected to fund the tender for the company’s outstanding US$150mn, 9.25% senior subordinated bonds due 2022 that are currently trading at cUS$101.038 (ALLQ) to yield c8.86% (g-spread 704bps; z-spread 703bps). The bonds have a duration of 2.799 years. The remainder of the proceeds is expected to repay in full, all obligations of “certain existing indebtedness”, according to Bond Radar.

    There is no mention in the initial information on whether or not these new bonds will also be senior subordinated, as what we have gathered only shows the new issue to be senior unsecured. Regardless, given the high IPT, we believe the bonds will be very well received by the markets as this will be the first Mexican issue that could price in the double-digits, something we have not seen in a while, considering that even the most recent Argentine credits have come to market only in the 9.0% range.

    We believe the reason Docuformas might come at such a high premium over its existing notes (and a high yield by any current metric given what we have seen in the primary market recently), is a combination of two factors. First, the company is not very well-known in the international capital markets. Second, the latest economic metrics issued by different government entities in Mexico all point to the weakening of the Mexican economy, showing (among other things) lower demand for credit both in terms of amount of loans issued and the size of these loans.

    Even with strong demand, the new issue might not print below 10%, which makes it attractive.