Ongoing COVID-19 disruption in 2021 saw a decline in Latin American loan and bond issuance but, despite the drop in overall activity, the market was still able to support a series of high profile deals.
Latin American and Caribbean issuance of high yield bonds, non-high yield bonds, leveraged loans and non-leveraged loans totaled US$146.9 billion in 2021, down 15% from the US$171.7 billion issued in 2020.
The slide in issuance came as Latin American economies contended with spikes in COVID-19 cases and lockdowns throughout 2021, with vaccination programs initially slow to roll out.
Businesses and consumers across the region, however, adapted and economies performed better than expected. After shrinking by 6.8% in 2020, Latin America enjoyed economic growth of 6.2% in 2021, according to the Economic Commission for Latin America and the Caribbean. An uptick in vaccination rates also helped to lift sentiment. According to Our World in Data figures, as of January 5, 2022, 64% of South America’s population was fully vaccinated.
Bond market boost
Overall issuance in Q1 2021 was especially strong, coming in at US$54.6 billion—the second-highest quarterly total on Debtwire Par record for Latin America and the Caribbean going back to 2015.
This was largely due to a steady stream of bond issuance (including both high yield and non-high yield bonds), which peaked at US$53.8 billion in Q1. Issuers were able to access international capital markets and take advantage of low global interest rates to cover their capital requirements or refinance.
At the end of June, for example, Brazilian financial services company XP Inc. raised its first ever bond on international markets, securing US$750 million for general corporate purposes. The bond matures in 2026 and priced with a coupon of 3.25%.
Other notable Latin American issuers to access bond markets in 2021 include Chilean paper and pulp group Empresas CMPC, which raised a US$500 million bond maturing in 2031, and NEM, a provider of remittance services owned by Mexican retail and finance conglomerate Grupo Elektra, which raised a US$500 million bond priced at 4.85%.
Bond issuance for general corporate purposes in the region reached US$28.6 billion in Q1 2021, double the US$14.3 billion secured in Q4 2020—though this dropped back down to US$11 billion by Q4 2021. Bonds obtained for refinancing, meanwhile, totaled US$58.9 billion in 2021, in line with the US$63 billion in refinancing issuance seen in 2020.
Even though Latin American debt markets proved broadly resilient, pandemic disruption took a toll on some companies, and restructuring activity spiked in the past two years as a result.
In 2020, year-on-year Latin American and Caribbean restructuring issuance more than quadrupled to an all-time annual high of US$2.2 billion. Issuance eased to US$860 million in 2021, but this still represented the third-largest annual total of restructuring in the region since 2015.
Many large distressed Latin American companies, however, opted to file for bankruptcy in the US under Chapter 11 in 2021 rather than pursue domestic options. These included, Chilean auto broker Automotores Gildemeister, Stoneway Capital in Argentina and Mexican hotel operator Grupo Posadas. According to Debtwire Par, the legal certainty of the US system has made it a preferred option for some.
Looking ahead to 2022, the market will be observing whether the introduction of a new insolvency regime in Brazil, the region’s largest jurisdiction, could see more restructuring activity stay in the domestic market.
The reforms to Brazilian bankruptcy law came into force in 2021. As reported by Debtwire Par, they allow distressed companies in the country to obtain preliminary injunctions to block enforcement and collection legal action prior to filing for bankruptcy. The same source also reports that new provisions have been put in place to incentivize distressed companies to look at processes that can be arranged outside of court (similar to the prepackaged Chapter 11 deals seen in the US), rather than traditional in-court reorganization proceedings.
Per Debtwire Par, the updated regime also changed how creditor-proposed plans, debtor-in-possession financing and cross-border insolvencies are handled. It is hoped the package of measures will improve the effectiveness of liquidation proceedings.
Sustainability sparks activity
While there remain challenges to be overcome in the region, there are also growth areas that are beginning to show results. For example, environmental, social and governance (ESG) and sustainability-linked debt issuance emerged as a key trend in the region’s debt markets in 2021 and looks set to continue.
Issuers in Latin America have noted the rapid growth in demand from global investors and institutions for investment opportunities linked to ESG and sustainability criteria. They have also seen strong appetite for ESG-linked debt where interest rate margins are linked to ESG and sustainability criteria.
This is now bearing fruit. According to Debtwire Par, Latin American ESG and sustainability loan and bond issuance totaled more than US$47 billion in 2021—four times the US$10.8 billion recorded in 2020.
Clearly the region can expect big things in this area in the year ahead.