Peru begins exchange offer for 9 1/8% bonds, Brady bonds

By Angela McDaniels

Seattle, Feb. 15 - The Republic of Peru began an exchange offer for its 9 1/8% global bonds due 2012 and four series of Brady bonds, according to a 424B3 filing with the Securities and Exchange Commission.

Under the offer, holders of the 9 1/8% bonds may exchange their bonds for reopened 8 3/8% global bonds due 2016, reopened 8¾% global bonds due 2033 or cash.

Holders of Brady bonds may exchange their bonds for new dollar-denominated global bonds due 2037, the issue price and coupon of which will be announced on Feb. 23.

The Brady bonds eligible for the exchange are the past-due interest bonds due 2017, front-loaded interest reduction bonds due 2017, floating-rate discount bonds due 2027 and fixed-rate bonds due 2027.

The offer will expire at 3 p.m. ET on Feb. 22.

9 1/8% bond offer

Holders who wish to exchange for reopened bonds may submit their 9 1/8% bonds via a reverse modified Dutch auction by either a competitive offer, which specifies the spread over the U.S. Treasury benchmark rate that holders would accept as the clearing spread for their 9 1/8% bonds, or a noncompetitive offer, which does not specify any such spread.

The maximum spread for the 9 1/8% bonds is 40 basis points.

The U.S. Treasury benchmark rate for the 8 3/8% bonds will be the yield to maturity for the U.S. Treasury 4.625% note due Feb. 15, 2017, and the benchmark rate for the 8¾% bonds will be the yield to maturity for the U.S. Treasury 4.5% bond due Feb. 15, 2036.

Peru will issue up to $750 million of the 8 3/8% bonds, which will form a single series with the $500 million 8 3/8% global bonds due 2016 outstanding. If holders of more than $750 million of the 9 1/8% notes seek to exchange their bonds for 8 3/8% bonds, they will be subject to proration and noncompetitive offers will be accepted first.

The country will issue as many 8¾% bonds as required, and the bonds will form a single series with the $900 million 8¾% global bonds due 2033 outstanding.

For each $1,000 principal amount of 9 1/8% bonds exchanged, holders will receive an amount of reopened bonds equal to the product of $1,000 multiplied by the 9 3/8% bond price, divided by the sum of the applicable reopened bond issue price plus accrued interest.

The 9 1/8% bond price is the price per $1,000 principal amount of 9 1/8% bonds based on the clearing spread as determined under the reverse modified Dutch auction.

Peru will also pay accrued interest up to but excluding the settlement date.

Holders who wish to tender for cash will receive an amount equal to the 9 1/8% bond price, plus accrued interest up to but excluding the settlement date, which is expected to be March 14.

The total amount of cash available to purchase 9 1/8% bonds will depend on the amount of bonds sold by Peru, including bonds issued under the offer, selling reopened bonds or new thirty-year bonds for cash or issuing bonds in the Peruvian domestic market.

Peru said it may decide not to issue new bonds for cash, or may not issue enough new bonds for cash to satisfy all of the holders who opt for the cash tender offer, in which case, Peru may not accept any 9 1/8% bonds tendered for cash or may accept bonds ratably.

Brady bond offer

For each $1,000 principal amount of Brady bonds exchanged, holders will receive an amount of new 30-year bonds equal to the product of $1,000 multiplied by the applicable Brady bond price multiplied by the applicable factor, divided by the sum of the new 30-year bond price plus accrued interest.

The applicable Brady bond price is $997.50 for the past-due interest bonds due 2017, front-loaded interest reduction bonds due 2017 and floating-rate discount bonds due 2027 and $800.00 for the fixed-rate bonds due 2027.

The applicable factor is 0.73 for the past-due interest bonds due 2017, 0.94 for the front-loaded interest reduction bonds due 2017 and 1.00 for the floating-rate discount bonds due 2027 and the fixed-rate bonds due 2027.

Holders who chose to tender for cash will receive an amount equal to the applicable Brady bond price multiplied by the applicable factor. Peru will also pay accrued interest up to but excluding the settlement date.

The completion of the exchange offers for the Brady bonds is conditioned on at least $400 million of the new 30-year bonds being issued.

The tender offer for the Brady bonds may be completed even if the exchange offer for the Brady bonds is terminated. However, the tender offer may be subject to proration.

Global Bondholder Services Corp. (212 430-3774 for banks and brokers or 866 736-2200 toll-free) is the information agent. Citigroup Global Markets Inc. (212 723-6106 or 800 558-3745) and Deutsche Bank Securities Inc. (866 627-0391 or 212 250-2955) are the dealer managers.

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