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CASE STUDY: City of Buenos Aires Makes Local Market Strides

The City of Buenos Aires’ ARS2.06bn (US$150mn) dual-tranche bond saw strong demand from local investors and marked the City’s return to the local debt market for the first time since Argentina secured a deal with its holdout creditors.

Oct 31, 2016 // 11:46AM

Deal At A Glance

Deal Type: Local currency bond

Governing Law: Argentina

Borrower: City of Buenos Aires

Arrangers / Dealers: Banco de Galicia y Buenos Aires S.A., Banco Santander Rio S.A. y BBVA Banco Frances S.A.

Legal Advisor to Borrower: Munoz de Toro

Legal Advisor to Lenders: Bruchou, Fernandez Madero & Lombardi

Size: ARS2.06bn (approximately US$150mn): (a) ARS363.6mn; (b) ARS1.71bn

Tenor: (a) 1.5-year and (b) 4-year

Coupon: (a) 4.24% and (b) 5.00%

Price: 100%

Date of Issue: 16 May 2016

Use of Proceeds: To refinance existing debt

Background

In early May the City of Buenos Aires proposed the issuance of Class 17 (carrying an 18-month tenor) and Class 18 (carrying a 4-year tenor) notes for up to the equivalent of US$460mn in local currency, to be issued under its Local Financing Program.

The City’s aim with the local currency notes was to address US$460mn in upcoming maturities in the local market, and also included plans for the potential issuance of US dollar-denominated notes to refinance another US$415mn in debt maturing in 2017 under its Medium Term Note (MTN) programme.

The city hopes to reduce its dollar-denominated debt by over 20% over the coming year.

Transaction Breakdown

The Class 17 notes will mature in November 2017 and present a bullet amortisation, whilst the Class 18 notes will mature in May 2020 and amortise in four equal instalments of 25% of its principal on a semi-annual basis starting in November 2018.

The notes have been rated AA- negative by Fitch, BAA1 stable by Moody’s and BBB stable by S&P Global Ratings.

The City, which holds one of the strongest credit ratings of all quasi-sovereigns in Argentina (stronger than the Province of Buenos Aires), was one of the first entities in the country to issue debt this year – with a ARS948,000,000 (US$65mn) bond in January, and one of the first to achieve a 4-year tenor on local notes.

The quasi-sovereign managed to secure aggressive pricing on the latest 4-year tranche (comparable notes on the market were trading over 200bp above the City’s at the time) despite concerns around inflation in Argentina and the City of Buenos Aires in particular. This was due in part to improved confidence in the long-term performance of the Argentine economy.

“The deal was oversubscribed, and given the quality of the credit as well as improved sentiment around Argentina more broadly, the City was able to secure a good deal on pricing,” said Javier Ezquerra, head of fixed income trading at Banco Galicia. “We believe the sovereign and quasi-sovereigns will help open up the country’s capital markets.”

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