Swinging their scythes into Colombia's lush field of agriculture securitizations, Mercancias y Valores and Corfinsura have made a clearing for sugarcane this season. The investment banks are separately cultivating deals backed by the sweet stuff, sources said.
Apparently further along than its peer, Corfinsura is preparing a Ps40 billion (US$13.8 million), multi-tranche bond, with maturities of five, seven, and ten years, and all proceeds are earmarked for refinancing. Collateral is comprised of future sales by sugar refiner La Cabana to a mix of purchasers, which includes primarily Comercializadora Internacional de Azucares y Mieles (Ciamsa), as well as major domestic supermarket chains Exito and Cafam. Ciamsa sells 50% of Incauca's exports.
Fitch Ratings affiliate Duff & Phelps has rated the deal AAA' on the national scale. Among the features that mitigate risk is a mechanism for accelerating payments backed by rights to exploit and sell over 5,400 hectares of sugarcane ripe for cutting within 12 months. An insurance policy covering the refinery dampens risk as well. The structure allows La Cabana to purchase product from other refineries if its own experiences problems. For the life of the bond, the company cannot assume financial debt that exceeds 40% of assets.
Despite wildly volatile sugar prices, La Cabana's debt load has oscillated narrowly between Ps46.7 billion (US$16.1 million) and Ps52.3 billion (US$18.0 million) since 1999. As of September 2002, the company had an EBITDA to gross interest ratio of 5.5x. Revenues totaled Ps104 billion (US$35.8 million) in the year through September 2002. Slightly more than half of sales are generated domestically.
The company is one of the largest sugar refiners in Colombia and leads the market in brown sugar, which enjoys wider margins than other varieties.
Meanwhile, market players are whispering sweet nothings about Mercancias y Valores, a local investment bank that has underwritten or participated in several agricultural securitizations.
Mercancias is heard crafting a Ps80,000 (US$27.6 million) deal backed by future sugar sales from Incauca Refinaria to Postobon. That would be twice as bulky as a sugar-backed transaction Incauca placed last year via the same underwriter. That paper priced at 8% plus inflation and garnered a AAA' rating from Fitch Ratings affiliate Duff & Phelps. The structure of the current deal will closely resemble last year's, while the main participants are understood to be the same, sources said. Preliminary timing for issuance is April.
In the initial structure, Incauca's sales to Postobon were executed through forward contracts negotiated at the National Agricultural Exchange. Postobon makes a wide variety of sweetened drinks and has a 50% share of the non-alcoholic beverage market. Apart from holding the Pepsi, 7-Up and Canada Dry franchise in Colombia, the company concocts drinks under such brands as Popular and Lux. Incauca is Postobon's sole supplier of sugar.
As part of the 2002 issue, Postobon pledged to purchase at least Ps2.5 billion (US$861,000) of sugar each month. That figure adjusts upward in line with inflation and holds even if Postobon must purchase excessive volume in an extreme scenario of collapsed prices.
Should Incauca's refinery capacity crash for any reason, the originator can send raw product to Ingenio Risaralda, which is obligated to process the sugar under a contingency contract. The contract lasts as long as the deal.
Further support comes from an amortization fund, an interest fund and a coverage fund that is kept at 1.5x an index that gauges the probability of default. The upcoming deal may carry lower relative coverage, given the flawless performance of the previous transaction, sources said.
In addition, the latest transaction will carry a longer maturity of seven years. "Incauca's looking to swap short-term for long-term debt," a source said. Hungry only for pesos, the company is likely to pay back dollar liabilities and cut its exposure to the vagaries of the exchange rate. Nevertheless, it will no doubt keep a chunk of liabilities in greenbacks, since exports and domestic sales are more or less split down the middle. In recent years, Incauca's annual sales have hovered around Ps500,000 (US$172 million), sources said.
While Mercancias y Valores and Corfinsura are peddling sweets, ProPalma and Commodities & Banca de Inversion (CBI) are busy at the fatty end of the food spectrum. Both have slow-going palm-oil backed deals in the pipeline. Neither expected the untested sector to be so slippery.
Scuttling ambitious plans to upsize, CBI returned Fidupalma to its original Ps20 billion (US$6.9 million) after the structure earned mediocre marks from Duff & Phelps, sources said. Apparently the bank not only slimmed down the deal, but also culled some sketchy originators and dropped in forward contracts for good measure. The last move "should add substantially to the deal's security," said a source familiar with the transaction. CBI has sliced the maturity on the transaction in half to five years in a further bid to secure high ratings.
CBI has not finalized the list of originators. The group could number as many as eight producers or as few as one. A sole originator might hamper risk diversification, but could ultimately strengthen the deal as long as that producer has exceptionally robust financials, a source said.
Rival deal Titupalma has met obstacles of a different nature. Trade group Propalma - which is structuring the deal without the help of a bank - has been in a back and forth with regulators for weeks, said sources familiar with the transaction. "There were some adjustments requested by the superintendency [of securities]," said a source close to the deal. "And there's still some polishing up that needs to get done."
Titupalma remains Ps50 billion (US$17.2 million), has a 10-year tenor and has already been rated AA+' on the national scale by standalone agency BRC Investor Services. In stark contrast to Fidupalma's small number of potential originators, up to 100 producers will participate in Titupalma. In a move to spread around risk, the structure prohibits a single producer from accounting for more than 10% or less than 1% of the collateral.
Elsewhere on the Colombian landscape, Commodities & Banca de Inversion continues to work on a cattle securitization that will mimic a five-year structure placed July 26, 2002. Sized at Ps16 billion (US$5.5 million), the upcoming deal is nearly double the original's Ps8.5 billion (US%2.9 million). BRC rated the initial deal AA+'.
In recent surveillance on the outstanding issue, BRC noted that the value of the collateral comprised of milking calves, stud bulls, and other marketable cattle edged up to Ps10.3 billion (US$3.55 million) from Ps10.2 billion (US$3.51 million) at issuance. That boosts the present value of the collateral to over 121.5% of the issue value, from 119.8%. Beyond their overall value, the make-up of the herd changed according to the animals' life cycles. The cattle sector accounts for 5% of Colombian gross domestic product.
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