Santander Brazil is hoping investors are licking their lips for Nestle, as the bank peddles a domestic real estate receivable deal linked to the European food giant. "There's no way for investors to run Nestle risk in Brazil and this is a way of doing it," said Ricardo Leoni, an associate at Banco Santander in Sao Paulo.
Dubbed Walter Torre NSBC, the transaction is worth R$42.6 million (US$11.4 million) and has a 12-year tenor. Standard & Poor's has rated the bond AAA' on the national scale. Santander has enlisted local agency Atlantic Rating to make an assessment as well. Though in Brazil two ratings are not mandated for institutional investors to buy into a deal, double ratings are required for a single investor to buy more than 20% of a given transaction. Leoni said Santander is marketing the paper to "key investors" and is going the route of one-on-one meetings, instead of a less personable road show. The firm Tozzini, Freire, Teixeira e Silva is legal counsel on the deal.
Backing the bond are credits, rights and residual compensation amounts related to a quasi-leasing agreement known as built-to-suit. Nestle Brazil, Walter Torre Junior Construtora (WT) and the effective SPV - Walter Torre NSBC - are signatories on the agreement. WT recently rebuilt a Nestle distribution center destroyed by an accidental fire. The construction company is receiving monthly payments from Nestle for 12.5 years beginning in December 2001. These will fund the bond payments.
Mirroring the schedule of the built-to-suit agreement, coupon payments will be monthly. There is no official price talk on the deal, though Leoni is going for something tighter than the last real-estate receivable deal, involving Walter Torre as well. Also termed at 12-years, that transaction came out in early September and priced at 12.5% over the IGPM price index (see ASR 9/16 p.23). "We're targeting a more aggressive pricing than that." One reason is that the ratings for the current deal is two notches higher, chiefly a reflection of Nestle's strength.
Though unrated publicly by S&P, the agency assures that Nestle Brazil's finances are rock solid. "They're committed to making these payments and that makes this deal exceptionally safe," said Juan Pablo de Mollein, associate director of Latin America structured finance at S&P. Nestle has agreed to make monthly payments of R$533,651 to Walter Torres as part of the agreement.
"And if Nestle ends the agreement before the stipulated close date, it is obligated to make the entire residual payment," de Mollein said. And that would include penalties.
Historically, Nestle Brazil has enjoyed the operational and financial backing of its parent company. Business diversification and prudent financial policies further bolster the company's credit quality.