Corporate Liability Management of the Year - Petrobras

Corporate Liability Management of the Year - Petrobras

Bonds Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Gas Brazil

When new management took charge at Petrobras in 2016, it set the task of cutting debt at the state-owned energy company. At the end of the third quarter in 2016, Petrobras had more than $100 billion in net debt. But by the end of the third quarter last year, it had reduced its debt load to $88.1 billion, thanks in part to asset sales and bond buybacks.

In May 2016, Petrobras sold $6.75 billion in five- and 10-year notes to fund a buyback and it continued the strategy in 2017 with a $5.6 billion deal in February and another $6.22 billion exchange in September.

The company cut debt where it could in the financial markets last year, including a bond buyback for €540 million ($637 million) in June and paying off more than $1 billion in trade finance debt in September. But the size and the complexity of the September bond trade make it the winner of the award for Corporate Liability Management of the Year.

Petrobras sold $2 billion in eight- and 11-year notes in the cross-border bond market to help fund the buyback, while lowering its funding costs and extending its debt profile. The five series of old notes came due between 2019 and 2021 and carried coupons between 4.875% and 8.375%. The new notes priced to yield 5.3% for the 2025s and 6% for the 2028s.

Now Petrobras has to make less than $4 billion in bond payments in 2018, followed by $2.5 billion in 2019 and $1.8 billion in 2020. After that, however, the payments balloon to $16 billion. Petrobras still has not yet determined how it will approach the pending payments in 2021, but it could try to entice investors with more debt exchange offers this year.

The company says it does not need to raise more external financing this year, and uncertainty ahead of the presidential elections in October could close the window for Brazilian issuers in the cross-border bond market. But if the opportunity arises, Petrobras could return with a benchmark-sized issue just to take advantage of market conditions. LF