Flash Fixed Income Report /
Mexico

Mexico's BBVA Bancomer's new bond: Attractive

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    5 September 2019
    Published by

    As we reported on 29 August, Mexico's BBVA Bancomer S.A. Institucion de Banca Multiple, or Grupo Financiero Bancomer, acting through its Texas agency, (BBVASM), is expected to come to the bond market today with US$750mn non-call 10 tier 2 subordinated preferred capital notes, rated Baa3/NR/BB+ (the issuer's ratings are A3/BBB+/BBB+).

    We now have initial price guidance "in the very low 6.0%s". The notes will be due on 13 September 2034.

    They will have an optional call date on 13 September 2029 (1x only at par, in whole or in part) and a coupon reset feature as follows:

    On the optional call date, the coupon will reset to a fixed-rate equivalent to the sum of the then prevailing five-year UST rate, plus the initial credit spread. 

    In addition, the notes' covenants include a suspension of interest and principal payments provision if: 

    1. (a) The total net capital ratio declines below 8.0% or (b) the tier 1 capital ratio declines below 6.0%, plus, in each case, any applicable capital supplement; or 
    2. BBVA Mexico is classified as Class III or Class IV under the Mexican capitalisation requirements. 

    As is usual with these types of subordinated notes, there will also be a principal write-down provision if CET1 declines to or below 4.5%. 

    As stated in our previous report, the proceeds from the issue will mainly be used to fund a concurrent tender offer to repurchase, for cash, a portion of the outstanding Basel II subordinated non-preferred notes due 2020 and subordinated preferred notes due 2021, as well as to strengthen the bank's capitalisation ratios.

    We believe that, given that the currently outstanding US$1bn 7.25% junior subordinated bonds due 2020 trade at cUS$103.134 (ALLQ) to yield c2.12% (to worst) for a g-spread of 30bps and a z-spread of 18bps, and given the US$1.25bn 6.50% subordinated bonds due 2021 trade at cUS$105.347 (ALLQ) to yield c2.84% (to worst) for a g-spread of 124bps and a z-spread of 125bps, the initial price guidance seems attractive, considering factors such as their subordination, the longer maturity and typical junior debt covenants.

    Pricing should be today, if market conditions are conducive to issue at the stated levels.

    IPTs: very low 6.00% area.