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CASE STUDY: Ultrapar Makes Eurobond Comeback with US$750bn Benchmark Note

CASE STUDY: Ultrapar Makes Eurobond Comeback with US$750bn Benchmark Note

In Autumn 2016, Ultrapar, Brazil’s fourth largest company and one of the biggest downstream operators and fuel distributors, made an emphatic return to the international debt markets following an 11-year absence with a benchmark US$750mn 10-year bond.

Background

2016 saw a rise in M&A deals across Brazil as the country’s economy continued its tentative recovery from years of crisis, and the government looked to push ahead with its privatisation drive.

Ultrapar was one of the most active players on the market, making a series of high-profile acquisitions that included fuel distributor AleSat Combustíveis SA for BRL2.17bn (US$635mn), Petrobras’s gas unit Liquigás Distribuidora SA BRL2.8bn (US$819mn) and, earlier in June, drugstore chain Drogarias Big Ben for BRL1bn.

The company’s solid business model, low risk profile and strong credit quality allowed it to successfully tap the international debt capital markets in late September with an upsized US$750mn senior bond.

Transaction Breakdown

After an 11-year absence, Ultrapar announced plans to return to the markets with a senior unsecured benchmark bond on 22 September 2016.

It began a 3-day roadshow in the following week, visiting fixed income 29 September at 9:00am EST, a benchmark US dollar 10-year bond transaction was announced with initial price thoughts of ‘High 5’s’, eventually tightening to a final yield of 5.50%.

The orderbook grew to US$3bn from 121 investors, representing an oversubscription of nearly 6x. The high oversubscription rate allowed the company to upsize the bond to US$750mn with a spread of T+394.2.

The book was heavily anchored in accounts based in the Americas. About 62% of the notes were placed with investors in the Americas, another 33% went to Europe, and the remaining 5% were snapped up by Asian traders.

Asset managers formed the largest contingent of investors by type (42%), with 27% of the notes allocated to hedge funds, another 18% with banks – private (12%) and other (6%), with remaining 13% distributed between other types of investors.

The bond was rated Ba1 by Moody’s which stated that the ratings were primarily constrained by Brazil's sovereign government bond rating (Ba2). Ultrapar’s superior rating represented a “fundamental corporate profile that is stronger than the sovereign's – evidence of the resilient nature of Ultrapar's cash flows and financial flexibility,” according to the firm.

Transaction proceeds went towards general corporate purposes, which also included the refinancing of existing debt.

 

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Bonds & Loans

Bonds & Loans is a trusted provider of news, analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the global emerging credit markets.

 

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