Petrobras prints $3.25 bln in two-part bond deal

Petrobras prints $3.25 bln in two-part bond deal

Bonds Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Energy Brazil US

Editor's note: LatinFinance is making some of its most important coronavirus-related material available to all readers. Visit our coronavirus section for all our coverage and sign up to receive the Daily Brief newsletter in your inbox every morning.

Brazil's state-owned oil company Petrobras priced $3.25 billion in bonds on Wednesday in a two-part deal that was five times oversubscribed, said a source involved in the transaction.

Petrobras divided the deal into $1.5 billion in 2031 notes and $1.75 billion in 2050 notes. The 2031s priced at 99.993 with a coupon of 5.6% to yield 5.6%, while the 2050s priced at 98.110 with a coupon of 6.75% to yield 6.9%, the source said.

Petrobras opened the price talk for the the 2031 notes in the 6% area and put guidance at 5.65%, plus or minus five basis points. It then launched at 5.6%.

For the 2050 notes, it set the initial price talk in the 7.3% area, before setting guidance at 6.95%, plus or minus five basis points, and launching at 6.9%.

Investors placed close to $16 billion in orders, according to the source.

The bookrunners were BNP Paribas, Bank of America, Itaú, JPMorgan, Scotiabank and SMBC.

Petrobras is scheduled to settle the new notes on June 3. It said it intends to use the proceeds for general corporate purposes.

According to S&P Global, Petrobras will use the money to preserve liquidity "in the face of challenging industry conditions." This year, as low demand and low prices reduce revenue, Petrobras' debt levels will likely reach six times EBITDA, but they could improve to four times in 2021, S&P said.

S&P gave Petrobras' new notes a BB-, while Fitch Ratings gave them a BB- with a negative outlook.

COVID-19 and the collapse of oil prices presents a major challenge to all oil companies, and analysts say liquidity is key for companies to survive the crisis.

Earlier this month, Petrobras said its cash needs could reach $1 billion per month under a stress scenario. But the company has taken steps to reduce costs with a $3.5 billion cut in capital expenditure and $2 billion cut in operating costs, CEO Roberto Castello Branco said in mid-May.

In late March, the company said it would get BRL3.5 billion ($664 million) from two new credit lines, following a withdrawal for $8 billion from revolving credit lines.

Petrobras has also gone ahead with an asset sales program this month, opening the non-binding phase for its fuel distribution business in Colombia and issuing teasers for four thermal power plants.