Bloomberg News

Billionaire’s Bank Bonds Boosted by Moody’s Cuts: Andes Credit

February 14, 2013

Bonds sold this week by Banco de Bogota SA are returning more than any other of Colombia’s banks after Moody’s Investors Service left them as the only investment-grade subordinated debt among their industry competitors.

The $500 million of dollar-denominated securities gained 2.8 cents on the dollar to 102.8 cents since being priced on Feb. 11, with the yield falling 36 basis points, or 0.36 percentage point, to 5.02 percent, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. The yield on similar notes from Bancolombia SA rose 16 basis points over the same period.

The subordinate debt of Banco de Bogota, the largest of four banks in a group controlled by billionaire Luis Carlos Sarmiento Angulo, was able to hold onto the lowest level of investment grade last week amid a ratings revision helped by decades of steady earnings, said Felipe Carvallo, an analyst with Moody’s. Similar debt from other banks, including Bancolombia, was downgraded to junk status on Feb. 5 after Moody’s noted a “global trend” to impose losses on subordinate debt holders.

“The cut last week meant some portfolio managers had to sell off holdings to meet their standards, and this bond is one of the few that are left at investment grade,” David Cohen, a strategist at brokerage Corredores Asociados SA, said by phone from Bogota. “It was issued at a really good rate for investors.”

Yield Spread

Banco de Bogota, the second-largest bank in Colombia, sold the bonds to yield 42 basis points above similar notes from Bancolombia as two other Latin American deals were pulled, according to data compiled by Bloomberg. The timing of the sale forced the company to offer investors a higher yield, according to Jennifer Pachon, a fixed-income trader at Credit Agricole SA’s Miami brokerage unit

“The market got pretty complicated last week and that pushed yields higher,” Pachon said. “The issuer may be coming out 25 basis points above what they would have sold a week earlier.”

Brazilian companies J&F Participacoes SA, parent of the world’s biggest beef producer, and rig operator Schahin Oil & Gas Ltd., pulled deals in the past week as borrowing costs rose, according to people familiar with the transactions.

Moody’s rating “clearly” favored the results of the bond offer, which was 7 times oversubscribed, Banco de Bogota said in an e-mailed statement. “The price reached in the secondary market reflects the great interest from investors in the good risk profile associated with Banco de Bogota,” according to the statement.

While Bancolombia’s senior bonds share the same Baa2 rating as Banco de Bogota’s, the subordinated rating is lower as its higher proportion of consumer lending and its “slightly more aggressive” attitude is deemed riskier, Moody’s Carvallo said.

Subordinated debt means investors in the bonds rank below other creditors in the event of an insolvency or default. Subordinated bonds typically pay a higher yield than more-senior corporate bonds. Junk debt, also called high-yield, refers to securities rated below investment grade.

‘Burden Sharing’

Moody’s, which had announced a review of Colombian banks’ subordinated bonds more than two months earlier, cut the notes from Banco Davivienda SA last week to two levels below investment grade, and Banco GNB Sudameris SA’s to four levels below.

The yield on Davivienda’s notes due 2022 has jumped 31 basis points to 5.51 percent since the cut, while similar notes issued by GNB Sudameris climbed 27 basis points to 6.11 percent. The yield on Bancolombia’s debt due 2022 rose 37 basis points to 5.05 percent, the highest since September, according to data compiled by Bloomberg.

The downgrades reflect the view “that there is an increased likelihood that subordinated debt holders would be subject to burden sharing in the event support was required,” Moody’s said in the note.

Better Bet

The spread to Bancolombia’s subordinated debt narrowed as traders recognize Banco de Bogota is the better bet, Pachon said. Banco de Bogota’s yield closed one basis point below Bancolombia’s yesterday, according to Trace.

“It’s a swap that makes sense, you’re improving the rating and gaining yield,” she said in a telephone interview.

The extra yield that investors demand to own Colombian government dollar bonds instead of U.S. Treasuries increased three basis points to 127 basis points, according to JPMorgan Chase & Co.’s EMBI Global index.

The cost to protect Colombian debt against non-payment for five years was little changed at 98 basis points, data compiled by Bloomberg show. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

Yields on Colombia’s dollar bonds due in July 2021 fell one basis point to 2.65 percent. The peso weakened 0.3 percent to 1,783.20 per U.S. dollar yesterday.

Banco de Bogota last issued debt overseas in Dec. 2011 with a $600 million sale of senior debt due 2017.

“Banco de Bogota may have been well known to some investors, but maybe not to others,” said Anibal Valdes, an analyst at Barclays Plc. “It came cheap for the people who knew the bank well.”

To contact the reporter on this story: Christine Jenkins in Bogota at cjenkins28@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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