Cemex's $7.2 billion maturity payment due in 2014 was always
going to be difficult to meet, even in the best of times for
the global construction industry. But the three years since the
$15 billion restructuring that saved Cemex's life have been
among the toughest ever for the sector.
To head off another disaster, Cemex would again have to sell
creditors on the soundness of its post-crisis recovery efforts
and convince the markets to give it more time. The result was
the extension of $6.6 billion in debt, giving the company
breathing room as it sells assets and raises equity.
"This was an extremely important transaction for Cemex as
the majority of its debt was bank debt maturing in 2014," says
Mario Espinosa, co-head of LatAm DCM at Citi. "Cemex needed to
refinance to continue with its liability management program on
the rest of their debt and improve its stock price, which would
enable them to issue equity in the future."
Following five months of intense negotiations the Mexican
cement maker met at least 55 lenders - including the main bank
group of BBVA, BNP Paribas, Bank of America Merrill Lynch,
Citi, HSBC, JP Morgan, RBS and Santander - who held debt from
the 2009 financing agreement.
Working in Cemex's favor was the fact that it wasn't asking
for a haircut, and was dealing with the problem in a proactive
way two years before the due date.
In an ambitious move, Cemex targeted acceptance from
creditors representing at least 95% of existing exposures. This
was a higher-than-needed goal that would send a strong message
to the markets and set a positive tone on further restructuring
efforts. In the operation, holders could exchange their
existing exposures for three classes of debt due 2017 and new
9.5% bonds due 2018.
As demand for the 2018 bonds exceeded a $500 million cap,
creditors that wanted to receive new notes after the early
deadline would be allocated approximately 54% of the amount
they elected to receive, with the balance of their exposures
allocated to the other classes involved in the exchange - new
2017 loans paying Libor plus 525 basis points, new 2017 dollar
private placement notes paying 9.66%, and new 2017
yen-denominated private placement notes paying 7.735%.
In the end, participation hit 92.7%, just shy of the target.
Creditors agreed to extinguish their existing loans and private
placement notes in return for approximately $6.12 billion in
new loans, new private placement notes, and $500 million of new
9.5% senior secured notes due 2018. Approximately $525 million
in loans and dollar private placement notes remain outstanding
with the original 2014 maturity.
The move bought another three years' breathing space for the
Mexican cement maker, until 2017. Given expectations that the
construction sector will recover, this would allow the company
either to repay its loans or refinance them under easier
Cemex also agreed to make a $1 billion payment in 2013. If
it misses the payment, the debt maturity reverts to 2014.
"The bankers understood that we needed the flexibility to
deal with our market debt," says Fernando González, CFO
at Cemex. "At the end of 2011, the markets' perception was much
more negative. The markets are more optimistic now. It has
worked and exceeded our own expectations."
The market further applauded Cemex's prudent debt management
with a strong reception to a new 2022 bond in October. The $1.5
billion sale drew $7 billion in orders, and brought Cemex back
to single-digit yields in the 10-year space.
The final leg in the operation came in November, with the
carve-out of 27% of Cemex's non-Mexican LatAm assets. The
Colombian IPO of Cemex Latam Holdings raised 2.09 trillion
pesos ($1.15 billion), attracting three times demand and
placing 85% with international buyers.
"Basically this was the largest IPO in Colombia after
Ecopetrol with a majority of foreign investor participation,"
says Carlos Jacks, chief executive of Cemex Latam Holdings.
Jacks says part of the success of the transaction was due to
the appeal of the geographies involved. He says it was the
first time for a Colombian ECM transaction that the price range
was set and the shares divided into local and 144a tranches at
the time of pricing; issuers typically set the geographic
breakdown as well as a fixed price only after an extended order
period. Bank of America Merrill Lynch, BBVA, Citi and Santander
managed the sale.
Cemex is eyeing a less active 2013, with most of the
deleveraging expected to come from Ebitda growth. The company
was able to remove its most restrictive covenants in 2012 and
faces no maturity payments this year.
"We want to keep a clear runway of 24 months without
refinancing risk," González says. The company does not
foresee the need to access the markets for new capital, though
replacing certain debt through liability management exercises
is not ruled out.
González says Cemex is optimistic on the housing
recovery in the US. "Construction activity in the US is
unsustainably low," he says. LF