Venezuela benchmark drops 10% on week; Atlantida, Creditvalores price; Atento eyes deal

By Rebecca Melvin

New York, July 21 – A sharp selloff in Venezuela and Petroleos de Venezuela SA bonds tapered off on Friday after intensifying on Thursday, but investors remained nervous heading into the weekend about the prospect of sanctions against the country by the United States and possibly other nations.

Much of the curve for the sovereign debt, as well as that of the state-owned oil company, fell 10% over the past week amid concerns that President Nicolas Maduro will refuse to back away from his proposal to form a constituent assembly to rewrite Venezuela’s national constitution. If he follows through with his plans, the United States said this week it will enforce sanctions including possible oil sanctions, a Connecticut-based trader said.

The worst of the selling occurred on Thursday with more “mixed flow” seen on Friday, the trader said.

Venezuela’s benchmark 2027 bonds were last seen at 45½ bid, 46 offered on Friday afternoon, compared to 51 a week ago, according to a market source. A second trading source put the level on the 2027s at 46 bid, 47 offered.

Three sovereign bonds with interest payments slated for August were also sold off.

The fact that the two versions of the Venezuela 13 5/8% notes due 2018 and the Venezuela 11.95% bonds due 2031 and the 2022 bonds were being sold at the end of July when coupon payments of $500 million are scheduled for August “tells you that many people think the sovereign won’t pay it,” the Connecticut-based trader said.

The Venezuela 2031 bonds fell from 50 to 45 on Thursday and “possibly 43 were done,” the trader said.

“Everyone wanted to get out of 31s,” he said.

A PDVSA 2022 bond also has an interest payment due in August.

There are funds to pay the coupons and the Maduro regime has been paid to date, but given the antagonism that has arisen from the opposition resisting the government’s plans as well as pressure being brought to bear by the international community, the Maduro regime “might not pay because it’s easier to say I’m going to save this money, and invest it in the people,” the trader said.

Most people are focusing on the October amortization and ignoring the interest payments, but the August interest payments poses significant risk as well and cannot be ignored, sources said.

“They [the sovereign] have money to pay, but there is risk because despite all the backlash, [Maduro] is still moving ahead and that is causing some nervousness,” a New York-based analyst said.

The Venezuela 2020 bond has an amortization payment due Oct. 27.

Venezuela’s bonds all fell between 5% to 10% this past week, and the losses put pressure on possible recovery scenarios, which move lower as well sources said.

Market participants hope that if there is a default, it occurs under opposition leadership, which is expected to be able to work with and negotiate better with institutions such as the International Monetary Fund to establish credible economic reform measures.

A default under Maduro is the worst-case scenario, sources said.

Trump administration officials said on Tuesday that they are considering penalties, including another round of personal sanctions as well as economic ones.

“That is something for investors to assess,” a trader said.

Elsewhere in Latin America, Honduras’ Inversiones Atlantida priced $150 million 8¼% five-year senior notes at 98.99 to yield 8½% on Friday via bookrunner Oppenheimer & Co. Inc.

Proceeds of the Rule 144A and Regulation S notes are earmarked for repayment of debt, to fund the planned acquisition of Banco Procredit of El Salvador and for general corporate purposes.

Atlantida is a financial services company based in Tegucigalpa.

Creditvalores-Crediservicios SAS of Colombia also priced a deal – $250 million of 9¾% five-year notes (expected ratings: /B+/B+) at 99.035 to yield 10%.

Pricing on the Rule 144A and Regulation S notes, which had been seen at up to $300 million in size, came beyond the wide end of talk for a yield in the mid-to-high 9% range.

Credit Suisse and BCP Securities were bookrunners for the notes, which priced on Thursday. The notes have three years of call protection.

The Bogota, Colombia-based consumer lender plans to use proceeds for refinancing and general corporate purposes.

And Atento SA was set to start a roadshow on Monday for an offering of five-year senior secured notes.

Atento plans to use proceeds to redeem all of its outstanding 7 3/8% senior secured notes due 2020 and all of the existing Atento Brasil debentures due 2019 and for general corporate purposes.

Atento subsidiary Atento Luxco 1 SA will issue the notes, which will be guaranteed by Atento.

Goldman Sachs, BBVA Securities, Morgan Stanley, and Santander Securities are arranging the fixed-income meetings for the notes that will price pending market conditions.

Atento provides business outsourcing services in Latin America.

Earlier in the session, West African Development Bank’s newly priced 5% notes due 2027 traded up from issue price but remained under par after the lender priced $850 million of the senior notes at 98.074.

The BOAD notes – the bank’s acronym based on its name in French – were 99½ bid, 99¾ offered after being released for secondary dealings but were not very liquid, a London-based source said.

In Central & Eastern Europe, Middle East and Africa, no new deals were heard to have priced, and nothing was added to the calendar.

“It’s quiet; summer is upon us,” the London source said.

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