Dollar bonds issued by Centrais Eletricas do Para SA, the Brazilian utility that filed for bankruptcy this week, will recoup all of their losses because the government will support the company, Barclays Plc said.
The $250 million of bonds due 2016 will “ultimately” recover in full after sinking as much as 54 cents to 50 cents on the dollar on Feb. 28 following the company’s bankruptcy filing that day, Juan Cruz, a New York-based analyst with Barclays, said in a report.
Barclays is sticking to its view that Brazil’s minority stake in Celpa, as the company is known, makes it likely that the government will prop up the company. Barclays listed the Celpa dollar bonds among its top Latin American picks as recently as September and said in a November report that the company was benefiting from “perceived sponsorship” from state-run companies. State-owned utility Centrais Eletricas Brasileiras SA, known as Eletrobras, owns a minority stake in Celpa.
“We expect the government to either buy out the controlling shareholders directly or to provide financial incentives to a private buyer,” Cruz wrote in today’s report. “We ultimately expect bonds to recover all of the value lost since the filing announcement and most likely trade at well above those levels once the process is concluded.”
Eletrobras won’t “rescue” Celpa, Minister of Mines and Energy Edison Lobao told reporters in Brasilia today. The federal government may intervene to ensure power supplies for Brazil’s northern state of Para, where Celpa operates, he said.
In backing a financial restructuring of Celpa, as the company is known, the government would likely avoid imposing losses on bondholders, according to the report. Cruz didn’t return calls seeking comment.
Celpa’s bonds rose 4.5 cents to 66 cents on the dollar at 4:44 p.m. in New York after climbing 11.5 cents yesterday, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. They rose as much as 8.5 cents earlier today.
The bonds traded at 104.25 cents, equal to a yield of 8.55 percent, on Feb. 27, the day before the bankruptcy filing.
Fitch Ratings cut Celpa’s rating to D from B- after it filed for bankruptcy. Fitch lowered the company’s bonds due 2016 to C from B-.