The Ministry of Economy and Finance announced agreement in principle on revised restructuring terms for the MOZAM 23s on 31 May (statement here). The new agreement replaces in full the previous agreement in principle that had been reached in November (see our research here).
There are some changes from the previously announced terms, crucially gas warrants (value recovery instruments – VRIs – with payments linked to gas revenues) have been removed. Financial terms for the new bond have, however, been improved to compensate, with a step up to a higher coupon and faster amortisation payments, and a small cash payment. Essentially, the deal drops VRI payments and puts them into the bond.
We estimate the value of the new offer (bonds and cash) is 102.9pts, in terms of the value of the offer today per unit of existing principal (ie on a comparable basis to secondary market prices for the MOZAM bond) at a 10% exit yield, falling to 90pts at a 12% exit yield. The MOZAM bonds closed 31 May at 94.5 (mid), based on indicative Tellimer prices; however pricing is uncertain due to the absence of trading after the revised restructuring terms were announced. Tellimer believes the market context is mid to high 90s.
We maintain our Hold recommendation on MOZAM 23 (which dates from 6 November after we upgraded to Hold from Sell following the previous agreement in principle). Prices in the mid-90s reflect some deal risk, relative to our estimated value of the offer of c103 (at a 10% exit yield), which seems appropriate, although lower prices could be justified on the basis of a more cautious exit yield assumption, especially given external market conditions.