The world's largest primary silver producer, Industrias Penoles, announced last week that it had pre-paid a 12-year structured bond issued in 1997 for $380 million. The Mexican company retired the issue using funds from a two-tranche syndicated loan in dollars and pesos.

The news appears to jibe with the recent narrative of Latin American commodity producers either retiring structured transactions or letting them amortize.

Penoles said that the three-year loan, split into a 455 million dollar tranche and $75 million-equivalent peso tranche, will bump up the company's long-term debt to $666.6 million from $591.6 million.

The company didn't answer requests for comment as of press time. A release of first quarter results, issued in April, said the firm had $87.7 million from a private placement issued in 1997, which would seem to be a reference to the structured notes that bore a coupon of 8.39%.

At the moment of the prepayment, Standard & Poor's rated the transaction BBB-'. Neither of the two other agencies assessed the deal.

While the notes were unsecured, they featured elements of the future flow asset class. Under the structure, the company would notify JPMorgan, the trustee, seven days before each payment date, whether it would pay in dollars or hand over 105% of the equivalent in silver ounces. Then, two days before coupon payment, Penoles would deliver the option it had chosen. If it had opted for the silver, then JPMorgan would liquidate the metal at the spot price. The structure included a reserve account amounting to the next quarter's debt service.

It was this option of delivering actual silver that made S&P's assessment similar to that of future flow export-backed deals. As a result, the deal's rating was closely tied to the local currency rating of the corporate.

S&P rated the deal BBB' upon issuance in June 1997, but dunked it to BBB-' in January 2001, following a parallel cut in the company's local currency corporate rating. The company's creditworthiness had been suffering from weaker prices for its metals, dwindling cash, and a strengthening of the peso, which erodes demand for its exports. The rating never reverted back to BBB'.

Apart from silver, the company produces metallic bismuth and sodium sulfate.

In the fourth quarter, the company reported that billed sales - factoring out metal and FX hedging - totaled Ps15.38 billion ($1.48 billion), a quarterly record for the month. The results were spurred by higher sales volume and soaring prices for gold, silver, lead, and copper.

Gross income, however, was flat from the first quarter of 2007, with lower prices and production of zinc, higher energy costs and an appreciating peso eating into gains.

In early May, Penoles raked in GBP905 billion ($1.8 billion) in an offering of new and existing shares of its Fresnillo unit on the London Stock Exchange. The company has been listed on the Mexican Stock Exchange since 1968.

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