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Panamericano Finds U.S. Yields More Alluring Than Potential Higher Rating
Banco Panamericano SA found the lowest U.S. Treasury yields in 15 months more alluring than the potential for a credit rating upgrade in selling its second international bond this year.
The Brazilian bank controlled by media magnate Silvio Santos sold bonds due in 2015 at a yield of 5.625 percent, 386 basis points, or 3.86 percentage points, over comparable maturity U.S. notes, according to data compiled by Bloomberg. Moody’s Investors Service said in December it may raise the company’s credit rating from Ba2. An increase of two levels to investment grade may cause the yield gap between Panamericano’s bonds and U.S. notes to narrow to 181, based on comparable-rated Banco do Brasil SA debt.
Brazilian companies are finding the combination of the lowest U.S. inflation rate in 44 years and the benchmark Federal Reserve interest rate near zero are too good to pass up. Corporate borrowers in Brazil have raised $19.5 billion in overseas markets this year, up from $6.6 billion a year ago, according to data compiled by Bloomberg.
“They didn’t want to lose the window,” said Vinicius Pasquarelli, an emerging-market debt trader in New York for Tradition Asiel Securities Inc., a unit of Lausanne, Switzerland-based Compagnie Financiere Tradition SA, the fifth- largest inter-dealer broker by market value. Treasury yields are “way too low” to pass up, he said.
U.S. Rally
Panamericano, based in Sao Paulo, offered the debt after yields on five-year Treasuries tumbled 77 basis points from three months ago to 1.71 percent. The rally in U.S. Treasuries has been led by investors seeking longer-term securities as inflation excluding food and energy prices held at a 44-year low since April.
Panamericano’s $500 million of subordinated notes due in 2020 traded at yields of 7.58 percent at 5:37 p.m. New York time, down from 8.625 percent when they were issued in April, according to data compiled by Bloomberg.
The timing of Panamericano’s senior bond sale may indicate the bank expects a credit upgrade will be delayed, said Natalia Corfield, a corporate debt analyst at ING Groep NV in New York.
“It doesn’t make any sense to sell now unless they expect the upgrade to take longer,” she said. “If the bank would be investment grade it would have priced below that.”
Panamericano decided to come to market this week to take advantage of investor demand after the European debt crisis shuttered international markets earlier this year, said Calman Moricz, investor relations manager for the bank in Sao Paulo.
“The markets are very hot now, depending on what happens internationally, either you have funds or you don’t,” Moricz said in a telephone interview. “It’s not a window that’s there for twelve months of the year. You take advantage of it.”
Maria Celina Vansetti, the head of Latin American bank research at Moody’s in New York, said the company raised its outlook on Panamericano to positive after the bank announced plans to sell a stake to state-run Caixa Economica Federal.
‘Very Bullish’
“We noticed that the market has been very bullish about the participation of Caixa Economica,” she said. “We need to understand the extent of the support because that’s what would lift the deposit ratings.”
The extra yield investors demand to own government dollar bonds over Treasuries shrank one basis points to 206 today.
The yield gap on Brazilian corporate dollar bonds instead of U.S. Treasuries was unchanged at 311 basis points yesterday, according to JPMorgan Chase & Co.’s CEMBI index.
The cost of protecting the nation’s debt against non- payment for five years with credit-default swaps fell three basis points to 116.5, according to data compiled by CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Debt Auction
The real gained 0.6 percent to 1.7580 per dollar, reducing its decline this year to 0.8 percent today. The yield on Brazil’s interest-rate futures contract due in January, the most active in Sao Paulo trading, fell one basis point to 10.82 percent.
Brazil plans to sell today as many as 2 million NTN-F notes maturing in 2014 and 2021 and as many as 7.5 million LTN bills maturing in April 2011 and July 2012, according to a statement posted on the Treasury website.
Panamericano bonds lagged behind the rest of Brazilian company debt in the past month as Moody’s disappointed investors by failing to lift Panamericano’s rating, Corfield said. The yield on the notes climbed 9 basis points compared with a 12 basis point decrease for the average yield on Brazilian corporate debt, according to data compiled by Bloomberg and JPMorgan.
‘Looking Expensive’
“Panamericano was looking expensive, even with the investor expectations that it was going to become investment grade, and with the upgrade not coming some people might have decided to take profit,” said Corfield.
The Brazilian central bank approved Caixa’s purchase on July 19, Banco Panamericano said in a statement dated July 20. Sao Paulo-based Caixa, rated Baa3 by Moody’s, said it will pay 739 million reais ($395 million) for the stake.
Investors may drive Panamericano’s bonds lower should the bank not receive a credit rating upgrade in the next month, ING’s Corfield said.
“If this upgrade starts to take long we can see further corrections in the price,” she said.
To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net Gabrielle Coppola in New York at gcoppola@bloomberg.net.
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