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Closing act in Latin American market

Mandated lead arrangers and bookrunners Calyon, Citigroup and Santander closed a US$725mn pre-export facility for the Brazilian petrochemicals company Braskem. A further eight banks joined the facility at MLA level, and in total an additional 16 financial institutions took part in the deal.

The deal was launched at US$500mn in August 2008, and despite the ensuing market turmoil, the transaction still managed to close oversubscribed at US$725mn. It is viewed as one of the last successfully syndicated transactions in Brazil and Latin America before the markets effectively closed at the end of the year.

“The syndication took place during the peak of the credit crisis to date and the worst environment ever for the US equity markets,” remarks a member of the deal team at Citi.

“Strong banking relationships, the security structure, and Braskem’s long absence from the market drove the success of the deal despite extreme risk aversion throughout the rest of the market.”

The pre-export loan was raised to pay off a bridge loan taken to finance the acquisition of petrochemical assets from Grupo Ipiranga in 2007 at a cost of US$1.2bn. In May last year, the company also issued a US$500mn eurobond to support the bridge loan refinancing.

The facility paid a margin of 1.75% per year over Libor, and has a five-year maturity. It carries a grace period of three years.

For the first six months of the operation, Libor adjusted to 5.016% per year was agreed to, in order to reflect the market’s current condition and dislocation between the fee practiced in the interbank and the Libor.

The export pre-payment is covered by a collection account with 110% of exports to eligible buyers.

Remarking on the deal structure, Eric Huber, vice-president, Latin America structured and corporate finance at SMBC, comments: “A unique characteristic of this facility is its pricing and security mechanism, whereby the economics of the deal are tied to a combination of credit ratings and leverage, and the security structure is further enhanced if the company breaches an indebtedness threshold.”

The deal was closed in a time of extreme market volatility, and many banks delivered their commitments during the collapse of Lehman Brothers, an event which dramatically reduced the ability of companies to raise funds in the cross-border bank debt market.

The attraction of the deal, despite the surrounding chaos, seems to rest partly on the well-established reputation of the borrower.

Ester Santos, banker at corporate and investment banking at Santander, Brazil comments: “Braskem is the largest petrochemical company in Latin America. They were very active in supporting the transaction with the relationship banks. We believe the main appeal was their creditworthiness allied with the scarcity of bank loans in Braskem’s balance sheet.

“The deal took place in the peak of the market turmoil and still it was oversubscribed by 45%. Moreover, we received commitments from 19 banks, of which only two were local ones. Some of the banks have very little exposure to Brazilian assets. This fact shows how Brazil is increasing its visibility in the international market.”

Long-standing relationships between the banks and the borrower clearly helped make the deal a success, remarks Charles Johnson, partner at Clifford Chance. “Braskem has a strong reputation as a borrower and the three joint lead arrangers are all known as market leaders when it comes to properly structuring and closing large transactions of this nature.

“It was also a definite plus that both the business teams and the legal teams knew each other well from previous Braskem transactions. This was a great advantage in terms of ensuring that the required level of co-operation was there to respond to changing market conditions and get the deal closed.”

Johnson concludes that the deal was a significant milestone in the Latin American market: “The deal was one of the biggest of the year in Latin America and received a lot of attention due to the fact that it closed during the period which many consider to be the height of the credit crisis.

“The market is now waiting to see if and when transactions of this nature will make a return.”

Deal Information

Borrower: Braskem
Amount: US$725mn
Mandated lead arrangers: Calyon; Citigroup Global Markets; Santander (bookrunners)
Lead arrangers: BBVA; Banco Do Brasil; ING; Intesa Sanpaolo; Mizuho; Natixis; Standard Chartered; SMBC
Lenders: ABN Amro; Banco Bradesco; Bank of Tokyo-Mitsubishi UFJ; DZ Bank; EDC; HSBC; JP Morgan; KfW
Law firm: Clifford Chance (lenders)
Tenor: 5 years
Margin: 1.75% over Libor
Date closed: October 2008