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CASE STUDY: Arcor taps demand for Argentine paper with US$350mn bond to refinance existing notes

Arcor, the leading confectionary manufacturer in Latin America was able to successfully issue a dollar-denominated bond in the wake of the sovereign’s return to the international capital markets. The rush for Argentine paper meant that the bond met with significant demand which enabled pricing to be tightened substantially.

Nov 23, 2016 // 10:55AM

Deal At A Glance

Deal Type: Senior unsecured Eurobond

Deal Structure: 144A/RegS

Issuer: Arcor SAIC

Governing Law: NY law

Listing: Luxembourg, Mae, Buenos Aires Stock Exchange

Bookrunners: Itau, JP Morgan, Santander

Legal Advisor to Borrower: Linklaters LLP, Munoz de Toro

Legal Advisor to Bookrunners: Davis, Polk & Wardwell LLP

Size: US$350mn

Tenor: 7-year (NC4)

Coupon: 6%

Reoffer price: 100%

Date of Issue: July 2016

Use of Proceeds: To refinance existing debt maturing in 2017 and fund working capital and for general corporate purposes

Background

Arcor retains strong gross and net leverage ratios. These stood at 1.8x and 1.2x respectively at the end of June 2016.

The company’s US$350mn bond came as part of the its US$800mn global notes programme, and will be used to repurchase the company’s US$200mn 7.25% 2017 notes, as well as some of its outstanding local currency debt and for working capital and general corporate purposes.

Transaction Breakdown

Arcor had the option to issue either a longer 10-year or shorter dated bond. A relatively typical (for Argentine entities) 7-year (NC4) shorter dated transaction was chosen as it allowed for the company to pay a lower rate.

Initial price thoughts (IPTs) were originally set at 6.5%. In launching the bond, a number of private banks that already held the company’s US$200mn 2017s looked to roll over their exposure, which in itself led to over US$1bn in demand for the bond.

The bond was originally split between around a 35% allocation amongst banks and private banks, with the remainder going to asset managers. However, after demand for the bond reached over US$1bn on the second day of marketing, private banks accounted for over 75% of the bond.

Combined with additional interest, demand for the bond eventually led to an orderbook of over US$2bn.

As a result of substantial demand, Arcor was able to tighten the pricing from the IPTs by 50bp to 6% by the time the transaction priced, and the deal was launched on July 6 2016, set to mature on the same day in 2023.

Although the B1/B+ (Moody’s/Fitch) rated transaction carries a bullet payment system at maturity, the bond carries optional redemptions which can be claimed in 2020 at 103%, 2021 at 101.50% and 2022 at 100%.

By geography, the bond was distributed 55% in the US, 14% across Latin America, 30% across Europe and 1% throughout the Asia-Pacific region.

Americas Argentina

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