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America Movil goes short
By Paul Kilby
NEW YORK, Sept 6 (IFR) - In its second market foray of the week, America Movil, A2/A-/A, returned Thursday to tap another niche market, this time raising USD750m through a three-year floater.
The issuer hit the sweet spot for investors seeking a hedge against US rate volatility and getting in ahead of a potential USD30bn trade from Verizon (NYSE: VZ - news) that has already forced a sell-off in the telecom sector.
Floaters are scarce in Latin America, with just a handful of credits tapping this market in recent years, including Santander Chile and Petrobras.
For the blue-chip Latin American telco, the economics made sense given the steepening of its curve in recent weeks as its EUR7.2bn takeover bid for Dutch telco KPN (Amsterdam: KPN.AS - news) unnerved the buyside and rating agencies that have put the credit on negative watch.
America Movil's short-dated bonds have ground tighter even as the long-end sold off, making a tap in this part of the curve comparatively attractive.
Starting with initial price thoughts of three-month Libor plus very low 100s, the borrower proceeded to set the spread at 100bp over and print at par. Against the company's short-dated fixed rate bonds, bankers were calculating a premium of anywhere between 5bp and 22bp with the Z (Other OTC: ZHLD - news) -spread on the 2016s being spotting at between 78bp and 95bp.
WORKING BACKWARDS
Conversely some bankers took the outstanding 2022s as a starting point and worked backwards. One calculated a new 10-year coming at Treasuries plus 200bp and a three-year at 150bp, though the steepness of America Movil curve with an approximately 80bp differential between 3s and 10s may put a new three-year fixed closer to 120bp.
Either way, the pricing and timing arguably made good sense, given the uncertain backdrop.
"There is a bunch of liquidity at the short-end and for a three-year floater they'll be paying about 1.25% for the lifetime of the bond," said a banker.
Demand peaked at a relatively modest USD1.5bn with some 75 accounts participating, though floaters are not known for their excessively large books. "There are only a small core group of investors that look at the front end, even less for floaters with a three-year tenor, but for America Movil they get a better bid from the high-grade buyer base accustomed to three-year floaters."
From the perspective of investors that play this market, a finish of 100bp over Libor arguably looked attractive against Z-spreads on other major telcos. For instance, Vodafone (LSE: VOD.L - news) 's 2015s and 2016s were trading with a Z-spread of 60bp and 70bp respectively, while BT (LSE: BT-A.L - news) 's 2015s were at 60bp, Deutsche Telecom's at around 86bp, AT&T (NYSE: T - news) 's 2016s in the high 50s and Verizon's 2016s at 80bp.
Demand was mostly driven by US investors but LatAm and European accounts were also seen participating. Joint bookrunners were Citigroup (NYSE: C - news) , BBVA (Madrid: BBVA.MC - news) and Banca IMI.
The latter bank was seen an unusual choice to take a leading role in this trade given its inexperience in LatAm deals such as this one, but it is thought that the Italian bank was benefiting from reciprocity rights given its participation in recent loans.
Co-managers on the trade included Mizuho and Mitsubishi UFJ Securities.
