BMG May Extend Debt Profile on Better Credit After Itau Venture

Banco BMG SA, whose bonds are delivering the second-best returns in Brazil this year, said it aims to extend its debt profile as credit quality improves after forming a joint venture with Itau Unibanco Holding SA.

BMG’s $250 million of subordinated bonds due 2020 have returned 21.4 percent in 2013, the most among Brazilian companies after meatpacker Marfrig Alimentos SA. Yields on the securites have tumbled 2.49 percentage points to 11.83 percent.

“If I offer a rate that is a little less, but I am extending the horizon, I think it’s a good deal,” BMG Chief Executive Officer Antonio Hermann de Azevedo, who is meeting with investors in New York next month, said today in an interview at Bloomberg’s Sao Paulo offices. “It’s natural.”

BMG’s payroll-lending venture with Itau is boosting investor confidence after it helped the bank snap a streak of four quarterly losses with a profit in the first quarter of this year. Second-quarter net income rose to 223 million reais ($98 million), up from 121.3 million reais in the previous three months, according to an earnings statement this week.

Fitch Ratings called the results “credit positive” in a report today, adding that the accord with Itau supports BMG with funding “it needs to generate good recurring earnings.”

Under terms of the venture, which started operating in March, Itau provides unlimited funding for payroll lending, plus 300 million reais directly to BMG over five years.

BMG ended the second quarter with about $1.5 billion of overseas debt due 2014 to 2020, according to data compiled by Bloomberg. The Belo Horizonte, Brazil-based bank, which is moving its headquarters to Sao Paulo this month, expects to triple the balance of local bank bonds, known as letras financeiras, to 1.5 billion reais by year-end and is preparing two asset-backed receivables funds, known as FIDCs, of about 500 million reais apiece, Azevedo said.

Extending debt maturities must be treated “very cautiously to avoid any wrong bond movements,” said Danilo Herculano, the head of investor relations. “As the investors understand this credit improvement, they will feel more comfortable.”

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