By Paul Kilby
NEW YORK, Sept 6 (IFR) - In its second market foray of theweek, America Movil, A2/A-/A, returned Thursday to tapanother niche market, this time raising USD750m through athree-year floater.
The issuer hit the sweet spot for investors seeking a hedgeagainst US rate volatility and getting in ahead of a potentialUSD30bn trade from Verizon that has already forced asell-off in the telecom sector.
Floaters are scarce in Latin America, with just a handful ofcredits tapping this market in recent years, including SantanderChile and Petrobras.
For the blue-chip Latin American telco, the economics madesense given the steepening of its curve in recent weeks as itsEUR7.2bn takeover bid for Dutch telco KPN unnerved thebuyside and rating agencies that have put the credit on negativewatch.
America Movil's short-dated bonds have ground tighter evenas the long-end sold off, making a tap in this part of the curvecomparatively attractive.
Starting with initial price thoughts of three-month Liborplus very low 100s, the borrower proceeded to set the spread at100bp over and print at par. Against the company's short-datedfixed rate bonds, bankers were calculating a premium of anywherebetween 5bp and 22bp with the Z-spread on the 2016s beingspotting at between 78bp and 95bp.
WORKING BACKWARDS
Conversely some bankers took the outstanding 2022s as astarting point and worked backwards. One calculated a new10-year coming at Treasuries plus 200bp and a three-year at150bp, though the steepness of America Movil curve with anapproximately 80bp differential between 3s and 10s may put a newthree-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 athree-year floater they'll be paying about 1.25% for thelifetime of the bond," said a banker.
Demand peaked at a relatively modest USD1.5bn with some 75accounts participating, though floaters are not known for theirexcessively large books. "There are only a small core group ofinvestors that look at the front end, even less for floaterswith a three-year tenor, but for America Movil they get a betterbid from the high-grade buyer base accustomed to three-yearfloaters."
From the perspective of investors that play this market, afinish of 100bp over Libor arguably looked attractive againstZ-spreads on other major telcos. For instance, Vodafone's 2015s and 2016s were trading with a Z-spread of 60bp and70bp respectively, while BT's 2015s were at 60bp,Deutsche Telecom's at around 86bp, AT&T's 2016s in thehigh 50s and Verizon's 2016s at 80bp.
Demand was mostly driven by US investors but LatAm andEuropean accounts were also seen participating. Jointbookrunners were Citigroup, BBVA and Banca IMI.
The latter bank was seen an unusual choice to take a leadingrole in this trade given its inexperience in LatAm deals such asthis one, but it is thought that the Italian bank was benefitingfrom reciprocity rights given its participation in recent loans.
Co-managers on the trade included Mizuho and Mitsubishi UFJSecurities.
Vodafone (VOD)
