Bonds Boost Debt Activity in Latin America | White & Case srl
After weathering pandemic-related disruptions in early 2021, Latin American loan and bond markets remained open for business, with bonds leading the way
The continued disruption of COVID-19 in 2021 led to lower loan and bond issuance in Latin America, but despite lower overall activity, the market was still able to support a series of debt deals. high level.
Issuance of high yield bonds, non-high yield bonds, leveraged loans and unleveraged loans in Latin America and the Caribbean totaled US$146.9 billion in 2021, in down 15% from the US$171.7 billion issued in 2020.
Global issue in value 2018 – 2021
Device type: All Use of profits: All
Location: Latin America and the Caribbean Sectors: All sectors
The drop in emissions came as Latin American economies faced spikes in COVID-19 cases and lockdowns throughout 2021, with vaccination programs initially slow to roll out.
Businesses and consumers in the region have adapted, however, and economies have performed better than expected. After a contraction of 6.8% in 2020, Latin America experienced economic growth of 6.2% in 2021, according to the Economic Commission for Latin America and the Caribbean. An uptick in vaccination rates also helped boost morale. According to Our world in data figures, as of January 5, 2022, 64% of the South American population was fully vaccinated.
Bond market dynamism
Overall issuance in the first quarter of 2021 was particularly strong, reaching US$54.6 billion – the second highest quarterly total on By debts record for Latin America and the Caribbean since 2015.
This was largely due to a steady stream of bond issuance (including high yield and non-high yield bonds), which peaked at US$53.8 billion in the first quarter. Issuers were able to access international capital markets and take advantage of low global interest rates to cover their capital needs or refinance themselves.
In late June, for example, Brazilian financial services company XP Inc. raised its first-ever bond in international markets, raising US$750 million for general purposes. The bond matures in 2026 and is priced with a coupon of 3.25%.
Other notable Latin American issuers that will access the bond markets in 2021 include Chilean paper and pulp group Empresas CMPC, which raised a US$500 million bond maturing in 2031, and NEM, a remittance service provider owned by Mexican retail and finance conglomerate Grupo Elektra, which raised a US$500 million bond at a price of 4.85%.
Bond issuance for general corporate purposes in the region reached US$28.6 billion in the first quarter of 2021, double the US$14.3 billion guaranteed in the fourth quarter of 2020, although they fell back to 11 billion US dollars in the fourth quarter of 2021. The bonds obtained for the refinancing, meanwhile, totaled 58.9 US dollars. billion in 2021, in line with refinancing issues of US$63 billion observed in 2020.
Although Latin American debt markets have proven to be resilient overall, the pandemic-related disruptions have impacted some companies and, as a result, restructuring activity has increased over the past two years.
In 2020, year-over-year restructuring issuance in Latin America and the Caribbean more than quadrupled to an all-time high of US$2.2 billion annually. Issuance fell to $860 million in 2021, but that still represented the third annual restructuring total in the region since 2015.
However, many large, struggling Latin American companies have opted to file for Chapter 11 bankruptcy in the United States in 2021 rather than pursue domestic options. These included Chilean car broker Automotores Gildemeister, Stoneway Capital in Argentina and Mexican hotel operator Grupo Posadas. According to By debts, the legal certainty of the American system has made it a preferred option for some.
Looking ahead to 2022, the market will watch whether the introduction of a new insolvency regime in Brazil, the region’s largest jurisdiction, could see more restructuring activity remain in the domestic market.
Brazilian bankruptcy law reforms came into force in 2021. As reported by By debts, they allow struggling businesses across the country to obtain preliminary injunctions to block enforcement and collection of lawsuits before filing for bankruptcy. The same source also reports that new provisions have been put in place to encourage struggling companies to consider processes that can be arranged outside of court (similar to the pre-packaged Chapter 11 agreements seen in the US), rather than the traditional reorganization proceedings before the courts. .
By By debts, the updated regime also changed the way creditor proposed plans, debtor in possession financing and cross-border insolvencies are handled. It is hoped that the package of measures will improve the efficiency of liquidation proceedings.
Sustainability Drives Business
While challenges remain in the region, there are also areas of growth that are beginning to show results. For example, the issuance of environmental, social and governance (ESG) and sustainability-related debt emerged as a key trend in the region’s debt markets in 2021 and is expected to continue.
Latin American issuers have noted the rapid growth in demand from investors and global institutions for ESG and sustainability-related investment opportunities. They also found a strong appetite for ESG-linked debt, where interest rate margins are tied to ESG and sustainability criteria.
This is now bearing fruit. According to By debtsESG and sustainable loan and bond issuance in Latin America totaled more than US$47 billion in 2021, four times the US$10.8 billion recorded in 2020.
Clearly, the region can expect great things in this area in the coming year.