Colombia's EPM markets two-part US dollar and peso debt offer

Colombia's EPM markets two-part US dollar and peso debt offer

Bonds Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Colombia

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Medellin's city-owned utility company, Empresas Públicas de Medellin(EPM), hired Goldman Sachs, HSBC and Scotiabank to arrange calls with investors to market a dollar and global peso bond offering starting on Tuesday, a source involved in the deal said.

If all calls are completed on Tuesday, the deal could move forward on Wednesday. However, if more calls are pending, the transaction may slide to Thursday, the source said.

Fitch Ratings assigned the proposed 10-year bonds a BBB rating; it also assigned a BBB rating to the possible tap on the company's 8.375% peso-denominated 2027 bonds. At closing, the issuance amount of the tap payable in Colombian pesos will be converted into an initial Colombian peso amount based on the then current exchange rate, the rating agency said. Payments are therefore exposed to exchange rate fluctuations, Fitch said.

Proceeds will be for general corporate purposes, Moody's said, adding that it expects the funds to be used "to strengthen the company's liquidity position amid economic repercussions of the COVID-19 outbreak."

The coronavirus pandemic has been putting a strain on Colombia's utility sector due to lower cash collection from customers. Government policy protecting consumers during the pandemic has included a 60-day deferment for customer payments that first expired in May but was extended until the end of July. Customers will have up to 36 months to pay utility companies.

Moody's assigned the anticipated issuance of $500 million to $750 million worth of 10-year bonds a Baa3 rating with a negative outlook.

The Baa3 rating "reflects the senior unsecured nature of the debt," the ratings agency said, as well as EPM's large scale and consolidated revenue base diversified by sector.

The negative outlook reflects the company's high leverage and slow progress in its announced divestment plan. It also reflects "uncertainties regarding the Ituango hydro plant, including the degree of damage to existing infrastructure, cost overruns for completion, insurance reimbursements, and total costs and potential fines related to social and environmental consequences," the rating agency said.

EPM postponed the opening of Hidroituango by three years after landslides in April and May 2018 caused the reservoir to rise and almost breach the dam. But in January, Álvaro Rendón, the new CEO of EPM, said the city-owned utility company will go forward with the Hidroituango hydropower project.