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Deutsche Bank GECC GlaxoSmithKline EEB/TGI Bank of America |
On September 28 2007, TGI International – the operating arm of Colombian gas company EEB – was the first Latin American corporate to come to the market after the onset of the credit crisis. Despite the poor market conditions, it also took the mantle of the largest corporate deal out of Colombia, establishing a new Colombian corporate benchmark in the process. The success of this deal is mostly attributed to the borrower’s willingness to be flexible and realistic given the market conditions. The gas transporter reduced its initial target of $900 million to $750 million, completing a 144a/RegS 10-year non-call-five dollar issue and abandoning a planned peso-denominated tranche.
During the initial roadshow, at the end of July, the company proposed a $300 million equivalent peso-denominated tranche but, by the time the deal came to market, interest in this tranche had subsided: “Initially, we thought investors would be interested in a local-currency tranche but, as market conditions deteriorated, it became clear that investors were much happier with one big dollar deal. We listened to the investors and did want they wanted to make sure this deal succeeded,” says Astrid Martínez Ortiz, president of EEB/TGI International. “Also, with 65% of TGI’s revenues being dollar denominated, we were flexible and able to do a dollar- or peso-denominated bond. We got a $2 billion dollar order book and so we decided to cancel the peso tranche.”
The shift to dollars also highlighted investors’ search for liquidity in the poor market conditions. Bankers across the region have found small local bond deals almost impossible to execute as liquidity and familiarity have become paramount. “Local-currency deals were still a relatively new tool when the credit crisis hit last year. The more traditional dollar bond was what people wanted to go into,” says Harris Hadjitheoris, director of Latin America debt capital markets at Calyon.
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“It was good to show investors that the TGI deal was performing well in the secondary market” |
The final nail in the peso tranche’s coffin came from the weakening dollar. Hadjitheoris says: “In the time between planning the peso tranche and actually doing the deal, the Colombian peso appreciated a lot against the dollar. Obviously, when people buy a local-currency tranche they are taking a view on the currency, and this early appreciation of the peso made investors uneasy about investing in a peso-denominated bond.” Eventually, after the US Federal Reserve cut the interest rate by 50 basis points, TGI’s bond priced at par, in line with price guidance with a 9.5% coupon, at a spread over 10-year US treasuries of 487bp. In May this year, the deal was trading at 107 ¼ to 107 ½.
Acquisition refinancing
“We were refinancing a bridge loan used for the acquisition of Ecogas,” says Martínez at EEB. “This deal was part of EEB’s expansion into one of the fastest-growing energy sectors in the world. In the gas transportation market there is a well-developed regulatory environment, which provides EEB and TGI with stable and predictable cashflows. Investors liked this.”
As part of the privatization process, TGI International was an entity created by Ecogas to hold Colombian gas transportation assets and trading rights. In December 2006, EEB won the bidding process to take over TGI International. To finance the acquisition, a syndicated bridge loan for $1.4 billion was organized by four banks: ABN Amro, Calyon, BBVA and Mizuho. This bridge was refinanced by two transactions – the TGI International issue was followed a month later by EEB with a $610 million bond, due 2014, carrying an 8.75% coupon. “It really helped having TGI ahead of EEB – it was good to show investors that the TGI deal was performing well in the secondary market,” says Pablo Venturino, head of global banking and markets for Latin America at ABN Amro, sole book-runner on both deals. “Most investors that came into the first deal were desperate for a piece of the second one as well – that’s why EEB’s book got to over $3 billion.” About 55% of the TGI bonds went to the US, with 30% sold in Europe, says the official. Real money drove the transaction, with fund managers taking about 50%. Insurers took 20%, banks 15% and leveraged money took about 10%. The EEB deal had 30% placed in Europe and nearly all the rest went to the US.
The approach of EEB/TGI International, with its flexibility and realism over pricing contrasts favourably with the actions of some other potential Latin American issuers during the credit crunch. In February, Petrobras planned a $500 million bond but within hours of announcing the deal the energy company pulled the deal as it was unable to get the pricing it was seeking. “What happened with Petrobras was very strange – the market has basically stayed open for other investment-grade companies during the credit crisis. [But] they were used to getting their own way, and when they didn’t they refused to show any flexibility – this definitely annoyed investors,” says a senior banker. With its BB rating with Standard & Poor’s, EEB/TGI is not even an investment-grade company.
