BNP Paribas and co-arranger Banco BBA finally closed last week a $135.5 million privately placed securitization of export receivables for Brazilian iron ore pellet exporter Samarco Mineracao S.A. The transaction was actually sold and priced in January, but it has taken until now to get all the paperwork in place, including approvals from the Brazilian authorities.
Three series of notes were issued through the Iron Ore Master Trust. The first series consisted of $33.5 million and was exchanged with the holders of the secured export notes issued by Samarco in 1995. The second series of $32 million was placed with one Japanese investor and four European commercial banks. Both sets of notes carry a coupon of Libor plus 300 basis points and have a five-year final maturity.
The third series consisted of $70 million in notes, which were sold to three major U.S. mutual funds. The notes carry a fixed coupon of 10.04% and priced at 350 basis points over Treasuries.
Samarco will use the proceeds of the issue to refinance costly local currency short-term debt.
In terms of sophistication the current deal is a far cry from Samarco's first securitization of $67 million back in 1995. A master trust structure issued notes via a New York-based trust and collateralized on actual and future receivables owned by a Cayman Islands SPV. Samarco must now supply all its exports for countries outside Mercosur to the SPV
"The company's first deal didn't have a special purpose company or an offshore subsidiary, it was a one-shot issue," explained Nicolas Noel from BNP Paribas in London. "The recent transaction was much more complex and challenging. Samarco wanted some additional flexibility in terms of leverage and so we went back to the note holders of the 1995 issue to get their unanimous consent for that.
"In order to get the new structure approved we had to go into extensive negotiations with Brazil's central bank. Finally, we were able to receive a BBB-minus rating for the deal from Fitch, one notch above Samarco's BB-plus corporate rating."
Originally, the notes were going to have a seven-year maturity, but things changed after the 1999 devaluation of Brazil's currency resulted in a huge cash inflow for the company. "Samarco no longer needed long maturities," said Noel. "So they decided to go for a five-year final maturity in order to tighten the spread and to make the notes appealing to some commercial banks for whom a seven-year maturity was too long."
Walter Taveira, Samarco's chief financial director was pleased with both the deal and the lead managers. "By using the international bond markets we were able to achieve our four main objectives: significantly extend the average maturity of our debt, reduce our average cost of funding, strengthen our international investor base and set up a flexible funding tool able to withstand and adverse market conditions," he said. "BNP Paribas and BBA showed a tremendous level of tenacity and commitment to bring this very challenging securitization to a successful completion."
Experts suggested that the deal allowed Samarco to save as much as 3% on the cost of funding in the domestic straight debt market.