Brazilian corporates warm to syndicated revolvers

NEW YORK, Nov 9 (LPC) – Brazilian companies are raising new revolving credits in the syndicated loan market as the bond market remains expensive and improving credit profiles allow them to take a more global approach.

Companies, including state-run energy company Petrobras, have traditionally relied on less transparent bilateral loans with international banks in return for lower interest margins and local currency loans with Brazilian banks, which can lend in reais.

But as credit ratings improve, Brazilian borrowers are finding widely-syndicated revolving credits an increasingly viable way to fund balance sheets and operations as the deals free up cash for other purposes.

Brazilian pulp and paper company Klabin launched a US$1.1bn five-year deal in the first week of November which includes a revolving credit and a term loan, and follows a blueprint set earlier this year by Petrobras when the country’s largest oil firm raised a US$4.35bn revolver in March.

“Brazilian companies are realizing after what Petrobras did, this is an efficient way to borrow instead of taking negative carry,” a banker said.

Companies, including electricity transmission group Transmissora Aliança de Energia Elétrica (TAESA), were downgraded in December 2015 after Brazil’s sovereign credit rating fell below investment grade earlier that month, which made dollar debt more expensive for Brazilian borrowers.

Brazil is currently rated Ba2 by Moody’s Investors Service, BB- by S&P, and BB by Fitch Ratings.

An overall deleveraging strategy has improved Petrobras’s outlook and improved its ability to service its debt. Net debt was US$72.8bn at the end of September, down 14% from US$84.9bn at the same time last year, Petrobras said in its third quarter earnings report on November 6.

Petrobras also announced a series of asset sales in Nigeria on October 31 as part of its 2018-2022 business plan to divest US$21bn in assets.

“It signals a strengthening credit profile,” a New York-based loans banker said, adding that the company’s revolving credit is part of its overall deleveraging strategy.

Klabin’s new revolving credit and term loan is priced at 135bp over Libor. Petrobras paid 170bp over Libor for its revolving credit back in March, but the margin could fall to 130bp if the company’s credit ratings reach investment grade.

Both Klabin and Petrobras typically raise large financings in the international bond market, but higher prices, more volatile global conditions and increasing US interest rates have led the companies to consider new funding options.

“These revolving credits are firsts for both these companies,” a third loans banker said. “Banks have been pushing [the companies] to look into a widely-syndicated loan because having these revolvers frees up cash for other requirements.”

The revolving credits are tied to leverage levels and companies are rewarded for not drawing on the revolvers. Petrobras incurs zero utilization fees if 33% or less of the RCF is drawn, for example.

A revolving credit allows Klabin to allocate cash towards its capital expenditure plans, while Petrobras can utilize liquidity from its revolving credit to curry favor with rating agencies that could boost its credit rating. (Reporting by Aaron Weinman Editing By Tessa Walsh and Michelle Sierra)

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