Wednesday, 4 February 2009

Local Bond Sales in Brazil Post Drop of 83 Percent in January. Tougher Terms, Shorter Maturities Dominate New Issuances

According to the CVM, Brazil's regulatory agency, sales of new fixed-income instruments, including local bonds and notes and structured investments, dropped 83 percent to 2.8 billion reais (over $1.2 billion) in January from a year ago. The driver of the decline was the offering of longer-termed senior notes, down 95 percent, as companies found it harder to raise cash by offering new debt. Investors are demanding these companies to offer more guarantees, cut maturities to less than three years from eight years less than 18 months ago, and pay higher yields; Bradespar sold 681 million reais of three-year debt at yields equivalent to 125 percent of CDI, which sounds crazy (12 months ago a company like Bradespar wouldn't pay more than 106 percent of CDI and borrow for at least five years.)

Offerings of debentures (the local word used for senior unsecured notes in the domestic capital markets) rose 44 percent in January. Companies funneled most of the proceeds from these transactions into debt-reduction and working capital. Sales of FIDCs, or shares in funds comprised of asset-backed securities, rose more than sixfold. This doesn't represent at all a recovering trend in this type of asset class.

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