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

By Angela McDaniels

Seattle, Feb. 22 - The Republic of Peru announced the issue spreads for the exchange offer for its 9 1/8% global bonds due 2012 and four series of Brady bonds on Thursday.

The spread is 119 basis points for the 8 3/8% global bonds due 2016, 163 bps for the 8¾% global bonds due 2033 and 175 bps for the new dollar-denominated global bonds due 2037.

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

Holders of Brady bonds were offered to exchange their bonds for the 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 were 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 expired at 3 p.m. ET on Feb. 22.

9 1/8% bond offer

Holders who wished to exchange for reopened bonds submitted their 9 1/8% bonds either via a reverse modified Dutch auction by a competitive offer, which specified 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 did not specify any such spread.

The maximum spread for the 9 1/8% bonds was 40 bps.

The U.S. Treasury benchmark rate for the 8 3/8% bonds was the yield to maturity for the U.S. Treasury 4.625% note due Feb. 15, 2017, and the benchmark rate for the 8¾% bonds was 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 sought 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 tendered 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 30-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 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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