Barbados, Mexico swap debt as markets rally

Barbados, Mexico swap debt as markets rally


Mexico is taking advantage of a global bond market rally, joining a wave of Latin American borrowers to exchange debt in liability management exercises.

The sovereign sold a 10-year bond on Monday which yields just over 4%. It is using the proceeds of the $3.9 billion sale to buy back four bonds with shorter tenors on which it pays higher coupons.

The move seizes on a respite in bond markets as investors and borrowers respond to the US Federal Reserve’s decision to continue its $85 billion monthly quantitative easing asset purchase program.

Yields on the benchmark 10-year US Treasury have fallen from a recent high of 2.98% on September 5. They tightened to 2.69% on September 18, when Ben Bernanke announced that the Federal Open Markets Committee (FOMC) had decided not to taper QE.

The 10-year US Treasury closed at 2.72% on Monday (see chart).

   Source: US Treasury  

Barbados also announced a debt buyback on Monday. The Caribbean sovereign will buy back its 2021 and 2022 bonds below par. It plans to sell a 12-year bond to fund the cash tender offer, and will begin investor meetings in London on Wednesday.

A new international dollar bond would be Barbados’ first since it sold the 2022 three years ago.

It follows a series of liability management exercises by Latin American corporate borrowers.

McDonald’s franchisee Arcos Dorados opened a tender offer earlier in the month. It is offering bondholders cash or a new 10-year bond in exchange for a 2019 note, which it is repurchasing above par. The Ba2/BBB minus rated borrower was in the market on Tuesday to sell the new bond.

Brazilian borrowers Embraer and Marfrig are also out with liability management exercises. Both secured participation from holders of just over half the bonds outstanding by the early deadlines. Embraer’s offer to swap holders of 2017 and 2020 bonds for cash or a new 2023 bond closes Wednesday.

Marfrig’s offer closes Friday. It is buying back a 2016 bond, funding the cash tender offer with proceeds from the sale of a 2021 non-call four year bond. The take-up rate means it can get rid of covenants on the bond being bought back. LF