Acesita, a Brazilian steel-maker, recently finished road shows for its first cross-border securitization. The $150 million deal is being called an "enhanced export-receivable transaction" due to a contingency support agreement from Usinor, Acesita's French affiliate.
It is unclear exactly what role Usinor, which owns approximately 35% of Acesita, will play in the structure. Yet its involvement seems to be behind the fact that lead manager S.G. Cowen is marketing the deal as a French corporate, the surprisingly tight price talk of 220 to 240 basis points over Treasuries and Fitch's preliminary BBB rating.
Some investors, however, were not convinced that the structure merits the tight spread. "There is a support agreement with Usinor, but there are a lot of layers to work through before you get there," said an investor who looked at the deal. "I'm sure that the agreement is worth something but it's not worth 220 basis points. I would maybe consider it if it was in the 300 basis points area."
Others felt that the French company's support was not enough to take away Brazil's country risk. "I think that this deal belongs north of 300 basis points and that it still has emerging market risk," said an investor. "To put it into perspective, you can look at TGN's triple-B-minus rated deal, which has some differences in the structure, but is priced at almost 500 over. People in my shop are going to look at both transactions and the difference in pricing and ask me: well, they have the same rating, can you tell me that Acesita's deal has no emerging market risk?' That's hard to sell."
Some sources who worked on the transaction said that this type of support agreement from holding companies might become more commonplace in structured deals. However, others feel that such backing has its drawbacks. "I think that parent companies don't always like to do this because they start to get penalized by the rating agencies," said an investor in Latin securitizations. "Their corporate ratings become too much at risk and that isn't cost effective for them."