Panama begins exchange offer, tender offer for 7¼% bonds due 2015

By Angela McDaniels

Tacoma, Wash., Jan. 17 - The Republic of Panama began an exchange offer for its $1,471,000,000 of 7¼% global bonds due 2015, according to a 424B3 filing with the Securities and Exchange Commission.

The republic is offering reopened 6.7% dollar-denominated amortizing global bonds due 2036 and potentially cash in exchange for the 7¼% bonds.

The reopened bonds will form a single series with the $1,785,279,000 of 6.7% bonds already outstanding.

In exchange for each $1,000 principal amount of bonds exchanged, holders will receive a principal amount of reopened bonds equal to the exchange ratio. Panama may also pay a clearing cash premium.

Exchange ratio

The exchange ratio is $1,000 multiplied by the old bond exchange value divided by the reopened bond exchange value.

The old bond exchange value will be (a) a price intended to result in a yield to maturity on the settlement date calculated using the 0.25% Treasury due Jan. 15, 2015 plus 135.2 basis points plus (b) the amount of interest accrued on the old bonds from the most recent interest payment date.

The reopened bond exchange value will be (a) a price intended to result in a yield to maturity on the settlement date calculated using the 3.125% U.S. Treasury due Nov. 15, 2041 plus 181.3 bps plus (b) the amount of interest accrued on the reopened bonds since the most recent interest payment date.

Holders will not receive a payment for accrued interest on their 7¼% bonds. They will not be required to pay an amount equal to the interest accrued on the reopened bonds.

Cash premium

The clearing cash premium, if any, will be determined through a modified Dutch auction. The minimum clearing cash premium will be zero.

Holders who tender should note the amount they are willing to accept as the cash premium, expressed in increments of $2.50 per $1,000 principal amount of notes. Alternatively, holders may submit noncompetitive offers that do not specify a cash premium.

Panama will select the clearing cash premium and the amount of notes to be accepted for exchange. It will first accept noncompetitive offers and then competitive offers that specify a cash premium that is less than or equal to the clearing cash premium. Competitive offers may be subject to proration.

The offer will expire at 5 p.m. ET on Jan. 24.

The republic will announce the old bond exchange value, the reopened bond exchange value and the exchange ratio on Jan. 24, the clearing cash premium (if any) and the preliminary results on Jan. 25 and the final results on Jan. 30.

The settlement date is expected to be Feb. 1.

Cash invitation

The republic is also conducting a concurrent cash invitation for holders to submit offers to sell their 7¼% bonds back to Panama for cash. Panama may accept all, some, or no offers.

The cash amount paid for each $1,000 principal amount of the bonds will be the base purchase price plus the clearing cash premium.

The base purchase price will be based on the yield of the 0.25% Treasury due Jan. 15, 2015 plus a spread of 135.2 bps.

The clearing cash premium will be determined by Panama through a modified Dutch auction process. It will be announced on Jan. 25. The minimum clearing cash premium is zero.

Holders will also receive accrued interest.

The offer will expire at 5 p.m. ET on Jan. 24. The settlement date is expected to be Feb. 1.

Any bond can be tendered in the exchange offer or concurrent cash invitation but not both.

Panama said it expects to accept a larger amount of bonds for exchange than for purchase. It reserves the right to cancel the concurrent cash invitation at any time.

Notes exchanged or purchased through the offers will be canceled.

The offers are not conditioned on each other. They are conditioned on the settlement of an issue of local Panamanian bonds or other financing. The Panamanian bonds are expected to settle on Jan. 30.

Bondholders located outside the United States may not participate in the exchange invitation before confirming their status as qualified investors or that they meet other eligibility standards.

The dealer managers are Goldman Sachs & Co. (800 828-3181 or 212 902-5183) and Citigroup Global Markets Inc. (800 558-3745 or 212 723-6108). The information and exchange agent is Bondholder Communications Group, LLC (888 385-2663, 212 809-2663 or 44 20 7382 4580).

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