The bad news for the LatAm syndicated loan market is that the
halcyon pre-crisis days seem a distant memory: lenders today
are weighed down by onerous capital requirements while overall
loan volumes remain thin. The good news is that the markets
appeared to flicker back to life towards the end of 2012, as
acquisitions drove deals while regional and Asian banks began
to fill the void left by retreating European players.
Banks are restructuring their balance sheets based on
currency preferences, local banks are growing in size, and
local currencies are growing in importance as a transaction
medium, says Mario Espinosa, managing director at Citi and
co-head of LatAm debt. This explains the shift away from the
previous focus on New York-centric deals.
Citi has played a role in most of the significant
transactions this year. But as Espinosa points out: "It's a
very different loan transaction market when you compare it to
two years ago."
He says his approach to loan syndication has changed in that
he must structure deals that are both competitive for clients
while responsive to the changing banking sector.
Mexican paint maker Comex hooked banks in to a rare
peso-denominated loan, many participating for the first time in
such a facility. The deal included a five-year 5.36 billion
peso amortizing term loan and a three-year 700 million peso
revolver for debt refinancing led by HSBC, Citi and BBVA
Bancomer, with 11 banks participating. The transaction was
oversubscribed and Mexican as well as non-Mexican banks
Ternium's $700 million, five-year amortizing senior
unsecured term loan facility brought in banks from around the
world, with US, Mexico, Chile, Brazil, Spain, the UK, France
and Japan all involved. Citi was a global coordinator with
Crédit Agricole, HSBC and JPMorgan. The steelmaker
raised the funds to help cover its portion of the purchase of a
27.7% stake in Usinas Siderúrgicas de Minas Gerais
The deal attracted a group of eight additional banks,
participating at a time when the European sovereign crisis
dominated the market mood.
These transactions also stand out because the borrowers
chose not to take their business to the booming - and still
historically cheap - bond market. Many borrowers are taking
their core financing to the bond market as opposed to
participating in floating rate transactions. That means that
although there's still space for banks, lending is likely to
shift to become more specialized.
Espinosa expects, for example, more bridge loans in the
future, as buyers need the money upfront and can refinance in
the bond market.
Banco de Bogotá, which closed a $500 million
three-year bullet facility in December 2011 with 12 banks,
later used a take-out for a bridge to finance its acquisition
of Central America-based BAC-Credomatic.
This is the kind of model the market will see for future
deals, says Espinosa. Citi managed the bond issue with HSBC and
Banks that provide bridge loans have to be especially savvy
and have a strong sense of how the capital markets and
take-outs work. The recipe isn't the same for all companies, he
says, the best takeout strategy for some companies could be
bonds, others equity and others syndicated loans.
"Bankers are going to have to have a good sense of all these
markets to know what the takeout market is in any given
situation," Espinosa says.
He says the number of deals in the Caribbean and Central
America are picking up, with many companies doing their first
financings, and local and regional transactions taking
Low interest rates next year should encourage the bond
market, with loans likely to be more acquisition-driven. "As
the economy improves and there's less volatility, then it's
more likely that companies will take the strategic step of
making a large acquisition, and that's what's going to generate
more activity in the acquisition finance market," Espinosa
Banks must also be conscious of the Basel III limits. These
regulations introduce a big shift in banking parameters,
creating a new banking landscape.
A stronger focus on regional capital and understanding of
the role of local and international banks with respect to Basel
III, especially as it relates to potential issuers, is at the
forefront of conversations today, says Espinosa.
Still, even with Basel III, there's a liquid environment for
finding funds. "For 2013, the bank markets will be open for a
variety of issuers, so long as the exposures are consistent
with the new Basel III requirements," he says.
Banks are expected to shorten their tenors, with terms of
seven or more years likely to be few and far between.
Espinosa points to single B and BB minus companies that have
launched transactions. These companies will need to watch the
market to evaluate their best liabilities structure.
"Banks have to be much more conscious today of risk-weighted
assets and returns on those assets," Espinosa says. "And as a
result, there's a tighter focus on tenor, on risk, and that
trend will continue as more and more banks continue
implementing Basel III standards for their balance sheets."
Banks will still do lower-rated transactions but they will
be fewer in number so they can be consistent with Basel III
capital ratios. There will be less a tendency to load up
balance sheets with lower-rated deals. LF