Best borrowers 2007: Best corporate borrower – Latin America: Companhia Vale do Rio Doce

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CVRD mines rich loan seam, following through with record-breaking bond issues.

Euromoney’s borrower awards 2007
Overall awards
Best sovereign/supranational/agency borrowerBest bank borrower
Best insurance borrowerBest ABS
Best CDO borrowerBest covered bond issuer
Best corporate borrowerBest high-yield/leveraged finance borrower
Latin America regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Central & Eastern Europe regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Asia regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Middle East and northern Africa regional awards
Best borrower

When Brazilian mining company Companhia Vale do Rio Doce (CVRD) offered to buy Canadian rival Inco for $18 billion in August 2006, CFO Fabio Barbosa and CEO Roger Agnelli weren’t worried about raising the money – to all intents and purposes it was already in the bank, thanks to the largest emerging market syndicated loan of all time.

The loan was put together by UBS, Credit Suisse, Santander and ABN Amro, and eventually grew to include 37 banks that lent, in the end, a total of $17.6 billion. The four bookrunners ended up lending $795 million each, and nine senior leads, including Brazil’s own Bradesco, lent $725 million. The banks came from all over the world, with 18 banks from Europe, seven from North America, five from Latin America, and others from Japan and Australasia.

None of them exactly needed its arm to be twisted to get involved, and in fact the loan was almost two times oversubscribed, with total commitments of $34 billion. To put that in perspective, CVRD’s earnings for that quarter, the highest it had ever reported, were $1.9 billion, on gross revenues of $5.1 billion.

But the banks knew their money was safe. CVRD is proud of its investment-grade credit rating – which makes it more highly rated than the Brazilian sovereign – and would never do anything to imperil it. (Not least because the interest rate on the loan automatically jumps from 40 basis points over Libor to 80bp over, the minute the company is downgraded.) The banks were also getting a lot of fees out of the deal, including a 25bp participation fee at the senior level.

More to the point, however, both CVRD and its bankers were keen to refinance or pay down the loan as quickly as they could – and so they proceeded to do just that. The motivation was partly because the interest rate on the loan steps up to 60bp over Libor in year two, but mainly because the bond markets were, if anything, even more eager to lend money to CVRD than the banks were.

The Brazilian markets, especially, were hungry for CVRD paper: none had been issued from the highly profitable company in more than four years. It came with R$5.5 billion ($2.5 billion) of local-market debentures, which were as long as seven years, and complemented $6 billion in pre-export loans.

It was the two tranches of global bonds, however, that really grabbed the headlines. The $1.25 billion in 10-year bonds came with a coupon of 6.25%, and a monster $2.5 billion 30-year benchmark pays just 6.875%. Between them, they easily managed to set the record of being the biggest Latin American corporate global bond issue of all time, and they could have been bigger still: the book reached $13 billion before it was closed.

Given global demand, the leads almost just needed to step back and let the deal happen: it was "straightforward, fast and unbelievably successful," says one. "I can’t think of an account that said no."