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CASE STUDY: YPF Debuts its First US Dollar-Denominated Argentine Peso-Linked Bond

Argentine energy company Yacimientos Petroliferos Fiscales’ (YPF) dollar-denominated, peso-linked bond was the company’s first such issuance in this asset class. The deal was also the first of its kind since 2007 and remains the only one of its type currently outstanding.

Nov 7, 2016 // 9:41AM

Deal At A Glance

Deal Type: US dollar-denominated, Argentine peso-linked FRN

Deal Structure: 144A/RegS

Issuer: YPF S.A.

Governing Law: New York law

Listing: Luxembourg

Bookrunners: BBVA, Santander

Legal Advisor to borrower: Chadbourne & Parke LLP

Legal Advisor to bookrunners: Milbank, Tweed, Hadley & McCloy LLP

Size: US$750mn

Tenor: 4 years

Spread: Badlar+400bp

Date of Issue: July 2016

Use of Proceeds: To finance investments in Argentine-based fixed assets and for working capital

Background

The deal proved to be an efficient method for financing the company’s working capital and investments in Argentina.

YPF was able to tap a wider investor base on increased risk appetite for Argentine paper in the international markets following renewed relations between the country and foreign investors which had re-opened Argentina to investment.

The global market sell-off that followed the UK’s decision to leave the EU, combined with low interest rates across developed markets leading to increased appetite for EM paper, created a strong market backdrop for the issuer to tap the markets, which was further aided by a re-activation in the Latin American primary markets.

Linking the dollar-denominated obligations of the bond to the Argentine peso also enabled the company to successfully reduce its debt-currency risk exposure.

Transaction Breakdown

Following positive feedback from key accounts with significant reverse enquiries, the syndicates announced the benchmark-sized US dollar-denominated ARS-linked 4-year transaction with a 2-day execution offering on Wednesday June 29 2016 at 1:30pm EST.

This allowed the majority of investors to continue their analysis and focus on the mechanics of this unique asset class, while the anchor investors had already indicated orders.

The orderbook quickly reached around US$750mm a few hours after announcement. IPTs were set at Badlar+400bp, with a floor of 18%.

On Thursday June 30 the offering was priced at Badlar+400bp. Badlar was set at 27.3542% and the FX rate was set at 14.9969 for the first coupon.

Although the initial size expectation was at US$500mn, YPF was able to utilise a strong orderbook and record demand to finally price a US$750mn bond, and the B3/B (Moody’s/Fitch) rated deal was issued on July 7 2016 to mature on the same day in July 2020. The transaction carried a 4-year tenor with a bullet payment.

The final book reached around US$1.4bn (1.8x oversubscribed), and comprised high-quality accounts, with key anchor orders dominated by real money investors from the US and Europe.

By geography, the bond was distributed 87.70% across North America, with the remaining 12.30% distributed across Europe.

By type, 71.70% of the bond was purchased by asset managers, 28.10% was bought by hedge funds and 0.20% was purchased by other buyers.

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