Bond Default Looms as Chile Regulator Intervenes in Araucana

  • Bonds slumped last week amid concern lender will miss payment
  • La Araucana defaulted on bank debt after failed restructuring

Chile’s Caja de Compensacion Familiar La Araucana SA will probably default on 45 billion pesos ($65 million) of bonds due this month after the government intervened in the struggling lender, according to a local ratings company.

A government regulator appointed a controller Monday after the lender defaulted on its bank debt. Clasificadora de Riesgo Humphreys Ltda. lowered its rating for La Araucana to C, or 14 levels below investment grade, it said in an e-mailed note.

La Araucana is in default on $68 million in loans after local banks rejected a debt restructuring proposal, it said in a filing dated Oct. 30. The company’s financial problems began with the botched implementation of a new software system, newspaper Pulso reported last month. The social security regulator will “review” $650 million in La Araucana bank debt and bonds, it said in a statement.

The Santiago exchange suspended all trading in La Araucana bonds for the next five days as it awaits more information from the company on how it plans to meet its obligations.

La Araucana’s inflation-adjusted bonds due in 2018 traded at 57.85 percent of their face value on Oct. 30, down from 100.9 percent as recently as June. Yields jumped to 31.3 percent, or 30.2 percentage points above local government bonds. La Araucana’s longer dated bonds due in 2022 last traded on Oct. 23 at 73 percent of face value with a yield of 14.4 percent.

Sergio Urbina, the head of corporate affairs at La Araucana, said that no one in the company was allowed to comment and referred questions to the regulator. A phone call to the regulator’s press department went unanswered.

La Araucana is Chile’s second-largest so-called caja de compensacion, providing services such as consumer loans, savings accounts, insurance, mortgage loans and health benefits to employees of client companies.

Bonds of other cajas de compensacion have also fallen amid the default concern. Notes from Caja Los Heroes due in 2018 traded at 58 percent of face value on Oct. 30, down from 75 percent about a month earlier. Securities from Caja Los Andes due in 2016 were being valued at 61 percent of face value, compared with 84 percent in May, the last time they traded.

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