Latin America’s Worst Bonds Crater on Sell-First, Ask-Later Mood
Published 27 February 2023, 16:27:30.987 GMT
(Bloomberg) -- Investors are shunning Atento SA’s bonds as an overdue payment on the notes does little to instill confidence the Brazilian call center operator can weather the worsening credit conditions on its home turf.
The Sao Paulo-based company said Thursday it paid past-due interest on a $500 million note due in 2026, and sold $40 million of new debt. While the payment briefly pushed the bonds higher, they’re trading below 30 cents on the dollar, handing creditors the worst returns in the region this month.
The market is growing doubtful of whether Atento can bolster its cash position in the face of upcoming payments and amid a brewing credit crunch in Latin America’s largest economy.
While the bonds traded near par a year ago, current prices suggests a default probability of about 25% in the next year, according to data compiled by Bloomberg.
“It’s a tricky one to hold in times of distress,” said Eduardo Ordonez Bueso, a money manager in Copenhagen at BI Asset Management, which oversees about $2 billion in emerging-market corporate bonds. “Better to sell first and ask questions later.”
Atento is one of nearly a dozen Brazilian firms with debt trading at distressed levels — with yields of at least 10 percentage points over Treasuries. The pile of distressed corporate debt in the country has risen nearly 24% this year to $11.9 billion, according to data compiled by Bloomberg.
The situation worsened with the sudden default of century- old retailer Americanas SA after revealing an accounting hole last month. A string of credit-rating downgrades hit other companies, including telecom operator Oi SA and airlines Azul SA and Gol Linhas Aereas Inteligentes SA. A handful of businesses have hired debt advisers, further spooking investors who fret restructuring announcements will come next amid high borrowing costs.
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Moody’s Investors Service this month downgraded Atento deeper into junk, citing its expenses and the expectation that Brazil’s central bank will keep interest rates high. Atento signed floating-rate swaps with banks during the pandemic, a time when rates hovered near record lows of 2%. Policy makers have since raised borrowing costs to 13.75%.
The firm’s bonds plunged in early February after reports that it hired investment bank Houlihan Lokey Inc. to raise debt.
Its stock, which is traded in New York, has fallen 33% this year, according to data compiled by Bloomberg.
Atento, which refinanced debt two years ago, said the $40 million of debt it just sold addresses near-term liabilities including the coupon payment and derivatives with banks. The new notes are due in 2025 and secured by receivables of some of its subsidiaries, according to a filing with the Securities and Exchange Commission.
In the next six months, the company could offer to exchange 2026 notes for the new notes, according to the filing. Atento declined to comment on the specifics of how the exchange would work.
The new financing doesn’t seem enough to fully address liquidity concerns, according to Filipe Botelho, a credit analyst at Lucror Analytics. About $40 million more comes due in August, including another coupon payment, and Atento faces $89 million of other short-term maturities it held as of the third quarter, according to Fitch Ratings.
Atento was created in 2012 after Bain Capital LP acquired Spanish phone operator Telefonica SA’s call center division. The investment firm later sold its holdings to a group of creditors including HPS, Singapore’s GIC, and a fund affiliated with Farallon Capital Management LLC.
The company operates nearly 100 locations in 14 countries, providing customer service, debt collection and sales services for multinationals, according to its website. It reported adjusted net income of $1.5 million in the third quarter, which analysts estimate increased to $5.7 million in the fourth quarter. The company is expected to report earnings on March 31.
“Liquidity is still under pressure and will depend on improving operations to stabilize,” said Omar Zeolla, an analyst at Oppenheimer & Co. “Bondholders may be bracing for a restructuring.”
By Maria Elena Vizcaino and Vinicius Andrade