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Latin America

Top Dealmaker: Natixis’ Helena Radzyminski on Latin America’s Loan Markets

With a slowdown in the bond markets following a jittery 1H2018 for EM and Latin America in particular, loans – especially in local currencies – are coming back into fashion. We speak to Helena Radzyminski, Managing Director, Loan Syndications at Natixis about the bank’s biggest deals over the past year, and strategic initiatives in the region planned for the coming year.

Dec 17, 2018 // 1:40PM

Bonds & Loans: Can you give us insight into Natixis’ key strategic initiatives in Latin America over the past 6 months? What were the top loan deals and syndications you’ve taken part in?

Helena Radzyminski: Natixis implemented a new global strategic plan this year, consisting of four pillars: energy and natural resources, infrastructure, aviation and real estate. This strategy, which builds on our existing strengths, has been carried out in Latin America as well. The region is especially relevant in the energy and infrastructure spaces, and we are well positioned to add value to the region’s development in this space. Our flat organizational structure allows us to be very dynamic and agile, and we have local boots on the ground in all of the most relevant countries. At the same time, we are coordinated across the region, with all countries reporting to the same head, allowing us to deliver our product expertise more widely.  By focusing on our strengths in these core industries we have deepened our relationship with clients in these sectors.

In Latin America, we have had a record year. We are proud of our role in the financing of the USD758mn financing for Cerro Dominador, the first concentrated solar plant in Latin America, in the Atacama Desert. We acted as global coordinators and fixed-rate placement agent for the transaction, which will enable the company to finalize construction and provide 210 MW to the Chilean national grid.  We were able to help bring about the participation of institutional investors, including global insurance companies that we partner with, that contributed important liquidity to the transaction. We also are quite pleased with the support of the other banks that joined.

Another landmark transaction was the innovative USD175mn, 29-year hybrid private placement and fixed rate loan structure we arranged for the Cajamarca Transmission Line in Peru. We provided a customized hybrid financing combining both a bond and loan structure. This allowed us to tap liquidity from both pension funds and insurance companies via the private placement, as well as our partners in Europe and Asia via the fixed rate loan. This dual approach provided best execution for the client and supported their goals in Peru.

Bonds & Loans: These deals stand out in the region for having attracted US long money, including pension and insurance funds. For many years that has been challenging, particularly on longer-tenor deals. What were the main factors behind this success?

Helena Radzyminski: One key difference between US and European/Asian investors is that the former have a stronger preference for rated deals and tend to require a make-whole provision. This restricts their investment to a smaller universe with clearly defined criteria. We find, especially in Asia, that smaller insurance companies that have not had access to the larger deals, have much more flexibility, especially in relation to the make whole clause or external ratings. By partnering with those investors, we have given them access to quality investment opportunities that fall outside the more restricted universe considered by US investors. Even when US investors are involved, the presence of additional liquidity can create better execution for the client.

Bonds & Loans: What are some of the key factors at play in the syndicated loan market in Latin America at the moment?

If you look at the loan volumes up until now, you can see that they have increased – according to Thompson-Reuters YTD volumes are US32bn and versus USD25bn last year. But if you look closer at those figures, a large contribution came from a small number of jumbo deals – Suzano and Petrobras among others – and if you take them out, we see that the volume increase is actually not so significant, so there is still plenty of room for the volume of syndicated loans to increase.

Another trend is political risk, where we see the focus has shifted from Mexico to Brazil. Earlier in the year there were concerns about Mexico ahead of the elections, but now we see more optimism; they don’t expect any revolutionary changes.

Across the region, the largest volume of deals is in the OECD investment-grade credit space: Mexico, Peru, Colombia and Chile; but despite election woes, we are also still seeing appetite for Brazil too. It is hard to say how that will change following the vote, but I think the key point is that it will remain a large market, and the top industries – exporters, pulp & paper, oil & gas, and soft commodities – will remain interesting. The large, well-known names are still competing, and they are coming to market despite rising costs.

Bonds & Loans: How has the slowdown in bond market activity factored into this dynamic? What about the central bank rates and monetary outlook? What are the reasons behind the divergence in monetary policies?

When the bond market slows down, the loan market tends to go up. But it also depends on the country. Those where you have more volatility, loan markets go up, but with few syndications and more club deals or bilateral. We’ve seen this in Brazil a couple of years ago, and now in Argentina. The volume doesn’t go up, just the composition.

Bonds & Loans: What have been the biggest challenges for you in Latin America over the past year?

The flight to quality has been the main driver of activity, which has led to a tightening in pricing, especially in those credits with strong name recognition in the industry, and means we have to be very aggressive in order to win deals for these top tier names. There is increased competition – but still sufficient liquidity - for top tier investment-grade borrowers.

US monetary policy has an outsized impact on the Latin American loan market, and we are currently in a rising rate environment. This is countering the previous downward trend driven by the flight to quality, so the regional trend is towards stabilization of pricing, with specific shifts in certain sectors and countries on a more case-by-case basis. For second tier names, we are starting to see prices rising, and with more enhancements demanded from banks – in terms of structure, securities, pre-export financing and export credit agency coverage. And when the market heats up, we will see looser structures and fewer covenants. For now, for most top tier names, I don’t anticipate pricing to go down, it will simply stabilise.

Bonds & Loans: How has the FX volatility impacted appetite for corporate local currency debt?

These corporates will have support from local and regional banks, and there will be less appetite from international banks with no presence in the country. Locals and regionals tend to match the revenues with the type of financing, they have a foothold in a country, are closer to these corporate clients and have more scope to lend in local currency. Thus, their appetite for local currency deals tends to be more stable

We see more and more financing going to local currency, which is a sensible approach for borrowers with the majority of their revenues in local currency. US dollar-denominated loans have historically provided lower interest rates, and tended to attract even those borrowers with less natural exposure to the US dollar, but with the increased FX volatility observed in the region that is changing. The big winners from this trend are going to be banks that can feed this local currency credit demand.

Bonds & Loans: What opportunities do you see in the region for the next year and how is Natixis positioning itself to benefit from them?

A key part of our strategy is to increase our presence in Mexico, expanding the range of products we can offer. We aim to enable increased investment in Latin America.

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