Last April, Standard & Poor’s lifted
Uruguay’s credit rating by one notch –
returning the country to investment grade after a decade of its
debt being rated as junk.
DEAL OF THE YEAR: Sovereign Liability Management
Republic of Uruguay UYP39.8bn New Issue, Tender & Exchange
A great part of its return to form was due to a remarkable
dollar-to-peso liability management operation in December 2011
of a size typically reserved for the largest sovereign LatAm
The operation allowed Uruguay to extend duration,
de-dollarize its curve, reduce foreign currency and refinancing
risk and provide liquidity to existing bonds. It also set a
template for other sovereigns to follow.
"We were able to increase the percentage of local currency,
execute at time of volatility [the US had been downgraded and
the Greek crisis was intensifying] in a scenario that was
complicated for local currency issuance, and we stuck with our
objectives," says Azucena Arbeleche, director of debt
management at Uruguay’s finance ministry.
In the first component of the operation, Uruguay sold 19.06
billion pesos ($1 billion) in inflation-linked 2028 bonds. The
bonds priced at par with a 4.375% coupon and offered little new
issue premium. Next, Uruguay carried out a cash tender for
various US dollar and euro- denominated bonds, to buy
approximately $1 billion with final maturities ranging between
2012 and 2036.
Finally, Uruguay offered to exchange the outstanding 5.0% UI
Global Bonds due 2018 into a reopening of the 2028 to improve
the liquidity of the new bond and diminish amortizations in
2018 – a high amortization year.
The final result was a new global inflation-linked 2028 bond
with $1 billion coming from new money and $725 million from the
exchange of global UI 2018. The sovereign also reopened the
2028 bonds later for $275 million in cash, bringing the total
to the $2 billion-equivalent ceiling it had set.
Uruguay was able to up the portion of local-currency debt in
its profile to 47%, while at the same time creating a UI
benchmark in one of the region’s biggest issuances
in local currency; it was also able to extend maturities and
provide a blueprint for other sovereigns to follow.
Uruguay was rewarded with a BBB- rating in April from
S&P and Baa3 (investment grade) from Moody’s
in August. Fitch had a positive outlook on its BB+ rating as of
December, one notch below investment grade.
Uruguay has continued its liability management process,
swapping $800 million-equivalent in domestic peso-denominated
and inflation-linked bonds in March. In November, it went after
the long end of its curve, with an $850 million dollar bond
exchange, which led to a new 2045 benchmark.
Arbeleche says Uruguay will remain opportunistic in the
current market, but she stresses that the main focus remains on
developing the local market and improving the efficiency of its
peso and CPI-linked yield curves through a steady supply of
local issues. LF