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Video Skin strengthened with spider silk can stop a bullet Holiday battle begins with “Gears 3” Follow Reuters Facebook Twitter RSS YouTube Read Congressman Phil Roe performs CPR on man at airport 20 Sep 2011 Actor Tom Sizemore arrested, held briefly in Los Angeles 20 Sep 2011 Eleventh victim confirmed killed in Reno air crash 20 Sep 2011 Philadelphia police complain about filthy stations 20 Sep 2011 Fed looks set to ease policy as U.S. outlook dims | 12:13am EDT Discussed 132 Obama to propose $3 trillion in deficit cuts 74 Geithner’s ”succinct” message irks Europeans 53 New York meetings open to avert Palestinian crisis Watched Self-driving car takes to the road Tue, Sep 20 2011 Human skin strengthened with spider silk can stop a bullet Tue, Sep 20 2011 Scarlett's naked pics, Tyler Perry is highest paid Wed, Sep 14 2011 Telemar 5-year $1 bln revolving loan could be Latam bellwether Tweet Share this Email Print Related News Central banks expand dollar operations Thu, Sep 15 2011 BofA plans 30,000 job cuts; investors underwhelmed Mon, Sep 12 2011 U.S. regulator to sue major banks over mortgages Fri, Sep 2 2011 Bank of America to sell China bank stake for $8.3 billion Mon, Aug 29 2011 Analysis & Opinion Monolines accuse Credit Suisse of misleading financial reports Banks beware: Time is ripe for MBS breach-of-contract suits Related Topics Technology » By Natalie Feary Tue Sep 20, 2011 8:32pm EDT by Natalie Feary NEW YORK, Sept 20 (IFR) - A five-year $1billion revolving facility launched by Brazilian telecommunications company Telemar this week could be a bellwether for where the Latin American syndicated loans market is headed. Bankers are watching it closely, since they say that if it turns into a club deal, it could signal a key change in direction for the market. The four leads RBS, Bank of America Merrill Lynch, Citigroup and HSBC, have the option of fully underwriting the facility. The loan was considered extremely aggressive and Telemar did not manage to get the three sub-underwriters it was looking for at the levels on offer. The company is offering pricing of 90bp over Libor for the use of up to a third of the facility, 105bp over if between a third and two thirds is used and 120bp over if over two thirds is drawn. Included in the covenants is a debt-to-EBITDA ratio of 4.5 times, and interest coverage of 1.5 times -- a level at least one banker thought was not strict enough. "Borrowers are getting greedy and looking to previous tightly priced deals, but conditions are different now," said a banker. Indeed, the bank meeting held on Monday in New York was heard to have fewer attendees than expected, according to some bankers. The covenants defined in Telemar TLNP4.SA deals and in the transactions being mandated right now are also expected to shape the format of future facilities. Indeed, US banks are said to be much stricter on covenant requirements than the European counterparts that they are replacing. One banker cited as an example the fact that US banks are asking for no limits on how much a price can be flexed, higher debt-to-EBITDA ratios and higher interest coverage. "Instead of one of these covenants being included, US banks are now saying two or all three must be included in loan covenants," said a loans banker. A LENDER'S MARKET The shift signals a move from a borrower's to a lender's market. Up to now each deal was coming tighter than the next and banks were said to be offering very aggressive levels when pitching clients. Mexican oil giant Pemex PEMX.UL, for one, recently closed a re-financing that was tightened by 50bp. The five-year tranche of the US$3.25bn loan, which made up US$2bn of the transaction, offered a spread of 100bp over Libor, 50bp tighter than when the original deal was priced. As the deal is the core facility of a big corporate with significant potential ancillary business, anyone dropping out could count themselves out of winning business from one of the biggest players in the region. So most of the banks remained. However, with their cost of funding spiking, some did so at a loss unless they managed to get subsidized funding. For European banks the cost of funding for five-year money is hovering around 125bp, said a loans banker. And that is still cheap, given that most Spanish and French institutions have seen their five-year CDS jump over 300bp. Even if they raise money locally and swap it, the equation is no longer favorable, given that the cost of swapping dollars to euros has more than doubled in the last week, from 30bp to 66bp on Monday. In spite of this, many borrowers in Latin America continue to use the pricing achieved by blue chips Vale VALES.SA, America Movil (AMX.N) (AMXL.MX) or Votorantim Participacoes as a yardstick. "It is hard for banks to tell borrowers that this pricing can't be achieved (anymore), so they will offer them tight pricing to gain mandates," said one loans banker. "It is only when we see a deal really struggle that the tables will turn." That is why bankers are watching Telemar so keenly -- it could be the watershed transaction that creates a benchmark for the new times. But while some bankers think a struggling deal may shift pricing, others are not so optimistic. "Banks are coming in on deals for league table credit, they are taking more risks to compensate for losses on loans, which is exactly the opposite of what should be happening," said a loans banker from a European bank. "Something really needs to blow up for things to change." (Reporting by Natalie Feary in New York) Technology Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. Social Stream (What's this?) 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Telemar 5-year $1 bln revolving loan could be Latam bellwether |
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