Latin American high-yield corporate bond issuance was down 9.5%, to $3.4 billion, in the first quarter of 2015 over the same period last year, Moody’s Investors Service says in its latest Latin American edition of High Yield Interest. At the same time, covenant protection declined to the second-weakest quarter recorded since 2011. New deals were concentrated in the telecom and oil and gas industries. High-yield volumes are expected to grow modestly this year, given companies’ low refinancing needs and investor aversion to higher risks in emerging markets.
Most Latin American economies will not see major recovery from 2014’s weak levels, with GDP growth estimates in the region lagging the world average, particularly in Brazil, and ongoing devaluations of local currencies.
“The sharp decline in commodity prices will further weigh on the operating performance and cash generation of Latin American oil and gas and mining companies,” says Associate Managing Director, Marianna Waltz. “Companies with high leverage emerging from a period of large capital outlays will suffer the most, with tighter liquidity and larger refinancing needs in the short term, while those with low-cost production profiles, solid liquidity positions and manageable debt maturities will fare better.”
Including local currency and cross-border bonds, rated corporate high-yield bonds reached $115.6 billion in March 2015, up from $62.8 billion at year-end 2014. The increase mainly reflected the downgrade of embattled Brazilian oil giant Petrobras, which added $51.5 billion in debt to Moody’s high-yield database. Total refinancing needs seem manageable, at approximately $9.3 billion through the end of 2016, which remains below the annual average of high-yield issuance over the past three years.
In the first quarter of 2015 negative rating actions prevailed in the Latin American high-yield universe, with 14 downgrades and no upgrades. Ten of the downgrades were of Brazilian companies due to weaknesses in corporate governance, operating challenges due to lower commodity prices and the sharp deterioration in their macroeconomic environment. Negative rating bias is higher for companies in the energy, oil and gas, manufacturing and construction industries.
The material has been provided by InstaForex Company – www.instaforex.com