Background
Following a series of positive events at Petrobras during 2016 that helped the oil company further consolidate its balance sheet, the company decided to execute a new issue and liability management transaction.
The company’s main objective was to continue to reprofile its maturity structure with a debt-neutral transaction, which culminated in the issuance of a US$4bn dual-tranche bond that saw nearly 400bp in tightening from initial price thoughts.
Transaction Breakdown
Petrobras and the Joint Boookrunners closely monitored the market for months leading up to January 2017 in order to take advantage of a positive issuance window, targeting the first two weeks of January with the expectation of a strong opening after a drop in Latin American supply in the capital markets and the election victory of Donald Trump in the US.
During the first week of 2017 the market backdrop was strong enough to lead Petrobras to announce an intraday transaction at the beginning of the following week. This also avoided potential supply coming from Latin American issuers that announced investor meetings starting that week.
The Joint Bookrunners and Petrobras announced a US dollar denominated benchmark size dual-tranche deal with a 5-year maturity with IPTs of 6.500% area and a 10-year maturity with IPTs of 7.750% area. A US$2.0bn capped waterfall tender targeting bonds maturing in 2019-2020 was also announced, and later upsized to US$4.0bn given the success of the new issue.
On 9 January at 8:00AM EST the deal was announced. The orderbook built steadily and reached US$10bn within two hours. At 1:00PM EST the Joint Bookrunners and Petrobras released guidance of 6.250% (+/- 12.5 bps) and 7.500% (+/- 12.5 bps), at which point the books were almost 5x oversubscribed.
The books proved resilient to meaningful spread compression, reaching US$10.3bn with 500
orders for the 5-year tranche and US$9.2bn with 443 orders for the 10-year tranche. Petrobras was then able to launch US$2bn in each tranche at the tight end of the range, subsequently pricing it at a yield of 6.125% for the 5-year and 7.375% for the 10-year.
The transaction was priced with no new issue concession for the 5-year tranche and a concession of 15bp for the 10-year tranche. The success of the exercise caused not only the two new tranches to trade up on the break but also prompted the entire curve to shift tighter.
North American investors dominated the book for the 5-year tranche, with 73% of the notes allocated to accounts based in the US and Canada, 17% to investors in the UK, 5% to investors in Europe, and 5% to investors in Latin America. About 66% of the 5-year notes were placed with asset managers, 16% with fund managers, 10% with hedge funds, 2% with insurance companies, 1% private banks, and 5% other.
Investors in North America also dominated the book on the 10-year tranche, taking 74% of the notes. About 16% of the notes were allocated to accounts based in the UK, 5% to Latin America, and 4% to Europe. About 61% of the 10-year notes were placed with asset managers, 17% with fund managers, 14% with hedge funds, 5% with insurance companies, 1% with private banks, and 3% with other investors.
