Honduras pays a premium in debut international bond sale

Honduras pays a premium in debut international bond sale

4:47pm EDT

By Paul Kilby

NEW YORK, March 12 (IFR) - Honduras on Tuesday priced its first-ever bond offering, but talk of coups, widening fiscal deficits and two negative outlooks made the sale difficult and forced the sovereign to pay up.

Monday's last-minute disclosure of a legal ruling that could leave the impoverished Central American country exposed to a US$200m judgment meant it was forced to widen pricing and come at the lower end of its targeted size range of US$500m-US$750m.

Pricing came at par to yield 7.5%, or 547.9 basis points (bp) over Treasuries, wider than the initial 7% area talk heard last week before the issue was delayed due to what were described as documentation issues.

Some investors were taken aback by revelations Monday that US courts had named Honduras as the successor-in-interest - the legal term for an entity that assumes the responsibility of another - in a case dating back to 2003, involving state-owned agency Corporacion Forestal y Industrial de Olanco, or Corfino.

It is thought that Ministry of Finance was only notified about its involvement late last week, leaving leads with the responsibility for pushing back pricing and disclosing the details to the buyside.

Barclays subsequent withdrawal from the transaction only served to create greater doubts around the trade, as investors declined to participate and helped shrink the book size from a peak of around US$2.5bn.

Barclays said in a statement to the market that it was withdrawing from the Honduras deal "due to the recent developments relating to a required additional disclosure to the offering materials."

"I am a little surprised that officials were not aware of this lawsuit or didn't disclose it," said one of the investors looking at the offering Monday. "The plaintiff is aiming for just over US$200m, and that is not small by any means for an economy this size."

ADDING YIELD

Despite such complaints, investors set aside concerns once the remaining lead Deutsche Bank tested the waters again at 7.5% after discussing the case with the buyside and the Finance Minister.

Arguments were made that a US$200m judgment would have little material impact on the economy and would only move debt to GDP from around 35% to low 36%.

Such discussions and the extra yield appeared to turn several on the buyside, though there were clearly investors who would not buy the credit at any price.

"There were a bunch of people who liked it at 6.5%, so a lot of people loved it 7.5%," said an analyst.

That extra 100bp made all the difference and encouraged some investors who had initially pulled their orders to a change of heart and a rush back into the trade. This in turn pushed up grey levels and secondary prices once the bond was free to trade. By the afternoon,

...