Mexico's Cydsa S.A.B. de C.V. (CYDSA) – a company involved in chemical products, electricity and steam co-generation, and the processing and underground storage of hydrocarbons – is tapping its currently outstanding US$330mn 6.25% senior unsecured bonds due 2027 (BB/BB+) with an additional US$120mn, bringing the total amount of bonds to US$450mn.
Initial price guidance is in the range of 6.375-6.50%, with the outstanding bonds currently trading at cUS$102.04 (ALLQ) to yield c5.83% (to worst) for a g-spread of 406bps and a z-spread of 412bps.
Given where the bonds are trading, we believe that the tap will price at the lower end of the guidance, if not better.
We believe that part of the reason why the initial price guidance is so much higher than the current trading levels of the outstanding bonds is the fact that, on 4 December, S&P cut its outlook on the bonds' rating, stating that:
"We're revising our outlook on CYDSA to negative from stable, reflecting the company's higher debt and the pressures on revenues and EBITDA due to lower prices of certain chemicals. Moreover, the negative outlook incorporates our view that CYDSA's operating performance still depends on favorable economic conditions, higher caustic soda prices, and consistent results in the rest of its business divisions."
In terms of the ratings themselves, the agency stated that:
"We're affirming our ratings on the company, including the 'BB' long-term and 'B' short-term corporate credit rating and its 'BB' senior unsecured debt ratings. Our recovery rating of '4' on the notes, indicating our expectation for a meaningful recovery (30% to 50%) in the event of a payment default, remains unchanged."
In contrast, Fitch Ratings affirmed CYDSA's ratings and outlook on 22 November stating that:
"Fitch Ratings has affirmed Cydsa, S.A.B. de C.V.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) and senior unsecured debt at 'BB+'. The Rating Outlook is Stable. The ratings reflect Cydsa's diversified business profile, low cost position resulting from recent investments, vertical integration and strong domestic brand recognition in table salt. The ratings are tempered by Cydsa's limited geographic diversification, price volatility of its chlorine and caustic soda business and the capital intensity of its business lines relative to EBITDA generation. The ratings also reflect Fitch's expectation that Cydsa will manage its business growth strategy conservatively to maintain consolidated net adjusted debt to EBITDA below 3.5x in the medium-long term."
We see the tap as attractive if the bonds are priced within guidance, and expect strong demand for this issue, which should price today.