Market rallies as Brazil 2040 trades to historic high; Avago prices $1 billion; Galaxy plans $500 million

By Paul A. Harris

St. Louis, Nov. 21 - Emerging markets rallied on Monday as Brazil's benchmark bond due 2040 traded to an all-time high, at one stage hitting a dollar price of 123.00, on hopes that Standard & Poor's may assign an investment-grade rating to Brazil's debt in the intermediate future.

Early in the session the benchmark dollar-denominated 11% bond due 2040 traded at 123.0 bid, according to an emerging markets source who explained that the country's favorable trade balance, as well as responsible fiscal policies on the part of Brazilian president Luiz Inacio Lula da Silva's government, have made it probable that S&P could upgrade Brazil to investment-grade within half a decade.

An analyst speaking on background, meanwhile, said that the rally had also extended to some of the other liquid Brazil bonds.

"Basically, the S&P comments have reinforced the wave of optimism that Brazil has been caught up in for the last few weeks," added the analyst.

"Finance Minister [Antonio] Palocci is going to get grilled in front of Congress [Tuesday], and the end of the political crisis is still not within sight, but right now the market does not really care," the analyst said, in reference to the Brazilian congress's ongoing investigation into corruption charges against Palocci.

"The trade numbers this morning were positive yet again, which further drives expectations about an early upgrade from S&P," the analyst added.

The rest of LatAm rallies

Enrique Alvarez, Latin American debt strategist for think tank IDEAglobal, spotted the Brazil 2040 at 122.95 bid, 123 offered at the close.

Alvarez added that there is a good overflow of news from last week on Palocci.

"There is good sentiment toward Latin America in general," he said. "Those factors are underpinning this rise."

Specifying that in a holiday-shortened week there is not a lot of trading volume in emerging markets debt, making it "pretty easy to push prices around," Alvarez saw strength elsewhere in the Latin American segment of the market.

"As Brazil goes, so goes Ecuador," he said, adding that "the high beta camp tends to move in synch," and that Ecuador was also up on the session.

"Colombia has also performed with the market," the IDEAglobal strategist added, saying that Colombia's mid-duration dollar-denominated bonds due 2013 were up 0.80 at 123.75 bid, 124.25 offered. Meanwhile longer Colombia paper had also gotten a lift, Alvarez added, as he spotted the dollar-denominated bonds due 2033 at 127.0 bid, 127.60, up 0.60.

Also benefiting from Monday's positive Latin America sentiment was Venezuela, whose bonds maturing in 2027 were at 117.10 bid, 117.65 offered, "up a dollar," the strategist added.

"The stronger double-B credits like Panama and Peru have been underperformers," Alvarez explained.

"Argentina has been up, which is no surprise, because as Brazil rises the longer durations on the Argentine curve also move up," he added

"And due to their lower prices they tend to move up more rapidly."

Alvarez characterized Latin America as presently being a "pretty quiet" region.

"There are some specifics as far as cross-border political noise," he said. "But there is nothing overly noticeable that would influence debt prices. The noise is country specific and within the normal noise quotient."

Quiet on the LatAm corporate front

Sources remarked that Monday found the market relatively quiet in terms of Latin American corporate bonds.

One source mentioned the deal from Brazil's government-owned electric company, Electrobras - a $300 million offering of notes that are expected to come with a seven-year to 10-year maturity (BB-), via Dresdner Kleinwort Wasserstein - but added that although it's expected to be the next LatAm corporate to price no information has recently surfaced on the deal.

Avago comes together at the end

Terms circulated Monday on one issue from an Asia-based corporate issuer that was paraded in front of emerging markets and high-yield accounts.

Avago Technologies Finance Pte. Ltd. priced $1 billion of high yield bonds in three tranches.

The Singapore-based company priced a $500 million issue of eight-year senior fixed-rate notes (B3/B) at par to yield 10 1/8%, 12.5 basis points beyond the wide end of the 9¾% to 10% price talk.

Avago also priced a $250 million issue of 7.5-year senior floating-rate notes (B3/B) at par to yield three month Libor plus 550 basis points, on the wide end of the Libor plus 525 to 550 basis points price talk.

In addition the company priced a $250 million issue of 10-year senior subordinated notes (Caa2/CCC+) at par to yield 11 7/8%, 25 basis points beyond the wide end of the 11½% area price talk.

Lehman Brothers, Citigroup and Credit Suisse First Boston were joint bookrunners for the LBO deal.

A syndicate source told Prospect News that in a presently choppy U.S. high-yield market Avago came together at the end.

The source spotted the new senior notes at 100.375 bid, and the subordinated bonds at par bid.

However another source saw Avago's new 10 1/8% bonds due 2013 at 99.75 bid, par offered late in the session, having eased from the issue price.

Galaxy joins Asian corporate pipeline

A roadshow is expected to start Wednesday in Asia for Galaxy Entertainment Finance Co. Ltd.'s $500 million two-part offering of global bonds (B1/B+).

The bonds will subsequently be presented to investors in Europe and the United States.

The prospective issuer, a subsidiary of Macau's Galaxy Casino, is offering seven-year fixed-rate notes which come with four years of call protection and five-year floating-rate notes that come with three years of call protection.

Merrill Lynch & Co. and Morgan Stanley are the bookrunners for the hotel and casino construction-funding deal.

A trader who focuses on high-yielding Asian credits said that although a modest buildup in the Asian corporate pipeline is anticipated the story right now in Asia is "a sovereign story."

"There is a dichotomy right now between the sovereigns and the corporates," the source said, adding that sovereign debt from Brazil, Mexico, the Philippines and Indonesia is all performing very well for a variety of reasons.

"In the Philippines it sounds as though there is a credit upgrade in the works," the trader added. "Moody's is there in the first week of December. The market consensus is that Moody's will take the Philippines off of negative outlook."

The trader added that investors are presently also upbeat about Indonesia because "it's 50 basis points cheap compared to Vietnam.

"And there is liquidity there."

However, the trader added, at present in the Asian corporate space "there is really not that much to be excited about. It's really more of a sovereign story than anything else."

Having said it, though, the trader professed the expectation that in the run-up to the close of 2005 the Asian high beta corporate pipeline would be a digestible one.

"All of these deals are easily do-able in this market," the source said.

"The pipeline is really small because of seasonal factors.

"We're almost to Thanksgiving. And not much gets done in December.

"Against that backdrop you have a ton of money coming into the asset class, and stocks are at four-year plus highs.

"People still think there is value in the emerging markets asset class."

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