Thursday, 26 February 2009

Changes in IFRS Standards Likely to Change Covenant Terms for Some Brazilian Local Debt, According to Andima

Changes in accounting rules due to the implementation and standardisation of IFRS guidelines in Brazil may lead to modifications in bond covenants for domestic corporate debt instruments including notes, promissory notes and syndicated loans, according to market participant groups such as Apimec and Andima. The requirement to include derivatives into corporate balance sheets as well as changes in the way some asset prices will be reassessed will have effects on the valuing of liabilities and equity; the terms of some corporate debt sold in the local markets specify limits to the issuer's leverage ratios -- which may spike when the new rules begin to apply. Creditors and debtors will have to sit down and perhaps renegotiate terms, the two associations predicted.

Some companies are starting to renegotiate terms of their bond covenants with bondholders. Unidas, the car rental company, and bondholders met to discuss an increase in leverage metrics indicators included in the bonds' covenants to better reflect the current economic environment, according to a story by Brazilian newspaper Gazeta Mercantil. Bondholders approved the changes but, there's no free lunch, amigos: the spread that Unidas will pay for the debt is 1.5 percentage points more than before, at 4 points, versus 2.5 point previously. The bonds pay yields linked to the CDI rate, the benchmark interbank lending rate.

No comments:

Post a Comment