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Cover Story: High-yield bonds: Balance of power

Jan 1, 2014

High-yield borrowers and investors in Latin America face a challenging year ahead. Rising bankruptcies in a turning market cycle could stymie the progress of an asset class that, until recently, had lured growing sums of capital. By Ben Miller and Mariana Santibáñez

il exploration and production firm Pacific Rubiales may be a new name in the bond market, but it has quickly become a popular one — not least with US high-yield investors.

When the Colombian-Canadian firm sold debt in November, its $1.3 billion six-year, non-call three bond offered at least 100 basis points more yield than similarly rated US firms Whiting Petroleum and Denbury Resources. And the double-B rated deal racked up some $4 billion in orders.

Yet being a high-yield borrower is, these days, by no means a guarantee of popularity in the debt markets. And the line dividing Latin American high-yield deals that succeed and those that are pulled — across a range of countries and industries — is rapidly becoming ever finer.

This distinction is likely to be drawn more starkly in 2014 amid rising borrowing costs and as commodity prices ease and economic growth cools across...

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