NEW YORK, Oct 9 (IFR) - Brazilian sugar-and-ethanol company Biosev postponed a US$300 million seven-year non-call four bond on Wednesday, after a double digit yield failed to be enough to get the deal over the line.
At roadshows, investors had the impression the company was looking to raise up to US$500 million and price discussions were initially heard in the high 9% and low 10% area.
However, lead managers announced a US$300 million transaction on Tuesday, and set initial price thoughts significantly higher in the 11% to 12% range.
The company blamed adverse market conditions on its decision to postpone the deal, but market participants said there were a number of factors that had worked against the issuer.
In particular, sentiment towards illiquid sub-investment grade bonds has taken a turn for the worse due to the continuing debate about the debt ceiling in Washington.
But, in addition, investors are also pushing back on a cyclical sugar and ethanol sector that has pushed bond prices well below par. Even the company’s higher IPTs seemed too rich on valuation terms in the current environment.
Biosev was seen coming flat to the main comparable USJ Acucar e Alcool, which had 2019s at around 11.25%-11.50% on a yield basis.
After adding 20bp-30bp for the curve extension, plus another 20bp-25bp for a new issue premium, bankers saw a new USJ seven-year also coming around high 11% to 12% area.
Such levels may have failed to satisfy a sufficient number of accounts comparing the two, both of which have their own strengths.
Biosev has a corporate credit rating of Ba3 from Moody’s and a BB- from Fitch, while USJ has a BB- rating from S&P and Fitch and no Moody’s rating.
Biosev’s transaction, however, was rated by Moody’s at B1 or a notch lower to the corporate rating, citing the company’s high level of secured debt. This meant that investors were looking to price Biosev at a premium to USJ.
Both companies have one common factor - links with large international names.
Louis Dreyfus owns Biosev, while Cargill has a joint venture with USJ. The former is the second largest sugar-and-ethanol company in Brazil, and the latter can boast considerable land value.
Local headlines also drew attention. The local press reported that bond proceeds were going to cover a put option used to enhance Biosev’s IPO earlier this year. It was reported that a group of banks were on the hook to honor that obligation.
However, a source with knowledge about the transaction said the put option is owed by a vehicle controlled by the parent and that counterparty risk is being taken by the Brazilian stock exchange Bovespa itself.
Either way, some analysts are doubtful whether it made much sense for the shareholder to finance the put through debt.
At the time of the IPO, the put structure was seen as offering investors a money-back guarantee, underscoring the difficulties of selling Brazilian sugar and ethanol names.
The stock itself dipped 5% today to hit BRL8.50 against an IPO price of BRL15. The put, on the other hand, has climbed to around BRL7 this month after being sold at BRL0.25 at the IPO.
The issuer was Biosev Finance International, with Biosev SA and Biosev Bioenergia SA as guarantors. The deal was being sold under a 144A/Reg S format.
There was a change-of-control put at 101 and an equity claw of up to 35% during the first four years. Active bookrunners were BNP Paribas, Bradesco BBI and Citigroup, while BB Securities, HSBC and Itau were passive bookrunners.