CASE STUDY: Rumo Finds Tight Window for US$750mn Bond Debut
Bonds & Loans
Published: 12 May 2017 04:36
Brazilian rail logistics leader Rumo S.A. made a strong international capital markets debut with a US$750mn 2024 bond offering that priced at the tight end of guidance despite broader uncertainty around emerging markets.
Rumo, Brazil’s largest railroad-based logistics operator, sought fresh capital in the first quarter of 2017 to finance new expenditure, refinance existing debt and streamline its maturity profile.
Capitalising off positive FX dynamics, the company sought an opportunity to test out the US dollar market for the first time. The company successfully placed an upsized US$750mn bond maturing 2024 in the international markets, securing aggressive pricing and a minimal new issue premium.
In order to introduce Rumo’s credit to international investors, the Joint Bookrunners recommended a 3-day roadshow that started on 30 January and went to New York, London, Los Angeles, Boston, and Switzerland. In total Rumo met and had calls with over 75 investors.
One of Rumo’s main objectives with this transaction was to refinance short term debt given that its main redemptions were between 2018 and 2020, so the company’s preference was for a 7-year deal.
After securing positive feedback received from investors, Rumo alongside with the Joint Bookrunners announced a US dollar denominated benchmark size transaction on Wednesday 1 February 1 with initial price thoughts of ‘high 7s’.
The orderbook gained strong momentum quickly, and the following morning reached an oversubscription of 5.6x of the intended volume (US$500 mm), anchored by several high quality international accounts.
NY books went subject at 5:00PM EST. On the following day, guidance of 7.500% (+/- 12.5bp) was announced at 9:15AM. The robust orderbook allowed syndicates to launch a US$750mn trade at 7.375% at 11:40AM at the tight end of guidance, with the notes pricing at par.
Accounts based in North America accounted for the lion’s share of the book. About 57% of the notes were placed with accounts based in the US and Canada, 27% in the UK, 8% Europe, 4% Latin America, and 4% Asia. By type, about 50% of the notes were placed with asset managers, 17% fund managers, 14% hedge funds, 5% investment advisors and 14% other investors.
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