Debt capital markets have been driven more than ever by a search for yield in recent years. For investors looking at weaker credits, the hunt is for solid businesses with convincing growth stories. This has offered plenty of opportunities for borrowers that have been able to raise debt at levels that would have been unthinkable just a few years ago.
Emerging market investors took notice of Corporación Azucarera del Perú’s (Coazucar) $325 million 2022 non-call five bonds in July, eagerly filling a book that reached $4.5 billion – and demonstrating that appetite continues to exist for strong high-yield credits, particularly those from outside of Brazil and Mexico.
Coazucar was able to use its good standing as a high margin, low-leverage corporate – and its geographic position as a scarcity Peruvian credit play – to generate interest at initial low to mid-7% whispers. Investor interest remained solid despite the pricing tightening to a final 6.5% yield.
The sugar and ethanol unit of Peruvian industrial conglomerate Grupo Gloria, which engages in dairy and food, cement, paper, agribusiness, transport, and service businesses in several countries, priced the senior secured BB/BB+ bond at 99.091. This offered a 6.375% coupon to yield 6.500% – at the tight end of the 6.625% area guidance, revised from 7%-area. In early December the bonds had traded above 108.
Fitch Ratings says Coazucar’s strong business position as the largest sugar producer in Peru was due to: its low cost structure and high operating margins stemming from its proximity to sugar cane fields; low dependence on third party cane producers; and, some of the world’s highest sugar cane yields per hectare. Coazucar operates five mills and eight distilleries in Peru, Ecuador and Argentina, crushing 8.4 million tons of sugar cane per year.
Numbers on its balance sheet didn’t hurt either. The company has adequate liquidity, a low debt to Ebitda of 2.3 times, and a high Ebitda margin of 36.8%. While the market was hopeful more BB issuers would emerge, deals in the latter part of 2012 indicated that investors were focused on individual stories like Coazucar’s and weren’t participating in every high-yield transaction that emerged. Indeed a few transactions have not closed.
Approximately 250 accounts took part in the Coazucar transaction including asset managers, local investors, retail investors, private banking and hedge funds. Bank of America Merrill Lynch and Citi managed the sale. LF