Neymar Mania Helps a Defaulter’s Return to Market: Brazil CreditJulia Leite
Brazil’s passion for soccer is paving the way for broadcaster Radio e Televisao Bandeirantes Ltda. to sell its first bond since defaulting a decade ago.
The media company, one of just two that are broadcasting World Cup games over Brazil’s public airwaves as the host nation vies for a sixth title, plans an overseas bond sale to tap into growing investor confidence sparked by higher ad revenue from the most-watched sporting event. Bandeirantes is seeking to sell $200 million of notes to refinance short-term debt, Standard & Poor’s said June 26.
The network, which also airs shows including “The Walking Dead,” posted a 30 percent increase in net revenue in the first quarter as companies paid in advance for spots to be aired during World Cup coverage, according to a bond sale prospectus obtained by Bloomberg News. While the broadcaster will probably pay an extra two percentage points in yield to raise funds after it stopped payments on $100 million of overseas debt in 2002, the pickup in earnings will pave the way for a sale, according to Credit Agricole SA.
“They’ll probably turn a profit with the boost from the World Cup, so they’re presenting this as a turnaround story,” Marco Aurelio de Sa, the head of fixed-income trading at Credit Agricole Securities USA’s Miami brokerage unit, said by e-mail. “They have to show consistent results in the next quarters. The company will remain highly indebted.”
S&P said in a report that it expects to rate the bonds BB-, three steps below investment grade. The average yield for similarly rated dollar bonds is 5.47 percent, according to data compiled by Bloomberg.
The improvement in revenue from the World Cup will help the company cut leverage ratios and lift profitability, S&P said in the statement. Bandeirantes, Brazil’s fourth-largest TV broadcaster by market share, paid $63.7 million for the transmission rights to the World Cup and another $35 million for the 2016 Olympic Games, according to the prospectus.
The company is getting a boost from the victories by Brazil, led by 22-year-old forward Neymar da Silva Santos Jr. The team beat Chile in a penalty shootout June 28 and will play a quarterfinal game July 4 versus Colombia.
Viewers have been lured by the highest scoring rate since 1982, with an average of 2.8 goals per match, and games that have about three minutes more play than in the 2010 World Cup. The tournament has also included surprises such as two African nations advancing past the group stages for the first time in the event’s history, and three former winners -- England, Italy and defending champion Spain -- failing to advance.
Viewership at the network jumped about 25 percent in the first 34 games of the tournament, compared with the 2010 games held in South Africa, Bandeirantes said in an e-mailed response to questions. The company declined to comment on the bond offering.
“We’ve already seen some signs of improvement in cash flow,” S&P analyst Luisa Vilhena said by phone from Sao Paulo. “These couple of years with the World Cup and the Olympics, especially because they are being held in Brazil, bring the potential for higher revenue.”
The company’s net loss narrowed to 20.8 million reais ($9.4 million) in 2013 from 24.1 million reais in the previous year. While net profit reached 11.4 million in the first quarter, Bandeirantes had a working capital deficiency of 515.6 million reais at the end of March and negative equity, which were cited by auditors as a “going concern,” according to the prospectus.
Brazil’s real declined 0.9 percent to 2.2225 per dollar at 2:01 p.m. in New York.
Bandeirantes’s default and the subsequent debt restructuring may make the deal a tough sell, according to Klaus Spielkamp, the head of fixed income at Bulltick Securities LLC. The company and competitor Globo Comunicacao & Participacoes SA stopped servicing their bonds in 2002 as Brazil’s plunging currency and stagnant economy fueled losses and boosted the cost of dollar debt.
“This history of a debt negotiation can scare off some investors,” Spielkamp said by phone from Miami. “I’m sure they benefit from the World Cup, but it’s still too soon to tell what the impact on the balance sheet is.”
Globo, which is also broadcasting the World Cup games and has a 40 percent market share compared with 6 percent for Bandeirantes, also restructured its debt after defaulting in
2002. Globo, Latin America’s largest media group, is now rated five steps higher than Bandeirantes by S&P at BBB+.
“Bandeirantes will remain a high-yield credit for at least the next couple of years,” de Sa said. “They’re extending the debt profile at a time when interest rates are very low, but they’ll probably have to pay a premium because of their history.”