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Venezuela eyes double-digit yield on Citgo debt sale

By Davide Scigliuzzo

NEW YORK, Jan 23 (IFR) – Venezuela’s US oil-refining unit Citgo will probably have to pay double-digit yields to lure investors into a US$2.5bn financing package aimed at pumping new cash into its state-owned parent PDVSA.

With some US$10bn in debt payments due this year, cash-strapped Venezuela is pledging some of its most valuable assets abroad to raise new cash, as it fends off default worries amid a steep slide in crude oil prices.

A US$1.5bn high-yield bond issue and a US$1bn senior secured five-year term loan will be sold through Citgo Holding Inc and secured by US$750m in midstream assets and a 49% pledge on the equity of Citgo Petroleum Corp, the operating entity.

Citgo has set price talk of 800bp over Libor on the five-year senior secured first-lien Term Loan B, officials from sole lead manager Deutsche Bank said on Thursday during a presentation to investors in New York.

The non-call one loan will have a Libor floor of 1% – meaning that the interest paid on the principal would be at least 9% – and will be issued at an original discount of 96-97 for an all-in yield of about 10%.

As an additional safeguard for investors, the company will be required to keep a debt service reserve account worth six months’ of interest and principal payments, and use 75% of excess cashflow to pay down debt.


At a 10% yield, the loan – which will rank pari passu with the upcoming bonds – appears to offer a 275bp pick-up over Citgo Petroleum Corp’s 6.25% 2022s notes, which were spotted trading at a yield of around 7.25% on Thursday.

Those notes had been quoted at a much lower 5.5% yield earlier in the week, but tanked by as much as eight points in cash terms after news of the financing package dashed hopes that Venezuela would sell the Citgo unit altogether.

At first glance, the premium appears close to the 200-250bp spread normally seen between debt issued by holding and operating companies in the high-yield market, but given Venezuela’s desperate need for cash, potential buyers might have the upper hand.

An investor who attended the presentation, for example, argued that fair value for the deal should be in the high 10% to 11% range, given the default risks associated with the sovereign and the company’s aggressive policy of borrowing to pay a dividend to PDVSA.

“From whispers in the room, I think this might get done at 10%,” he said. “But some of the bargaining power might be in the hands of the investor community.”

While the company is yet to announce maturity and price talk on the bond portion of the deal, the investor said the yield on offer was expected to be in line with that of the loan.

“I imagine (the bond) will have similar terms and similar price talk area. They may try to do a longer deal, but they could do a five-year as well,” said the investor, who argued that splitting the financing between a bond issue and a loan would not yield significant savings for the company, but simply allow it to tap a broader pool of investors.


If successful, the deal is expected to provide some support to the short end of Venezuela’s and PDVSA’s bond curves, easing concerns about this year’s maturities.

“Although it is less than optimal to use Citgo to carry the debt of PDVSA, this makes us very comfortable that Venezuela will fully meet its debt payments this year,” said Daniel Freifeld, founder of Washington-based Callaway Capital Management, which owns both Venezuela and PDVSA bonds.

Freifeld argued that as a credit, PDVSA continued to offer a better risk-reward ratio compared with Citgo.

“There is lower default risk in Citgo than in PDVSA, but the difference is not enough to justify taking a yield of 10% when PDVSA’s October 2015s offer an annualised yield of around 24%,” he said.

PDVSA’s 2015s outperformed other Venezuelan bonds this week over optimism that the Citgo deal will help the company meet most of its US$3.5bn debt maturities, plus interest, due this year.

“If you believe there is an interest from the government to maintain PDVSA as a working entity, then this should be particularly beneficial for PDVSA bonds,” said Marco Santamaria, a portfolio manager at AllianceBernstein.

“But all money is fungible, so you never know if they redirect this money to other purposes.”


Responding to questions from investors, Citgo management confirmed that PDVSA had abandoned earlier plans to sell Citgo, in spite of receiving strong interest from bidders.

“PDVSA has confirmed to us that Citgo is not for sale,” a company official said. “It was a very robust process. A large number of bidders expressed interest. But PDVSA made a strategic decision not to sell.”

The US$750m of assets pledged as collateral for the financing package include Citgo’s terminals of East Chicago, Linden, Albany, Toledo and Dayton, as well as the company’s ownership interest in four pipelines.

While only 49% of the operating company could be pledged as collateral without triggering change of control clauses in some of its existing debt, the holding company will be the beneficiary of 100% of future distributions from Citgo Petroleum, including dividends as well as asset or equity sales.

The commitment deadline for the loan portion of the deal has been set for February 4, while details of the new bond issue are expected to be announced in the mid-part of next week.

Citgo Holding’s financing package is expected to be rated Caa1 by Moody’s and B- by S&P.

(Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Sudip Roy)

FinanceInvestment & Company InformationVenezuelaCitgoPDVSA […]

Leveraged Loan Fund Outlfows Increase to $594M; 27th Straight Week


Cash outflows from bank loan funds increased to $594 million for the week ending Jan. 14, according to Lipper. That’s up from $374 million last week, but down from $1 billion two weeks ago, and $1.8 billion in the week ended Dec. 17, 2014.

The influence from exchange-traded funds picked up slightly week-over-week, at 4% of the redemption, or $26.4 million, versus just 1% of the redemption, or $2.3 million last week. Recall that ETFs were heavy, at 18% of the big withdrawal three weeks ago, and that was anomalous to most every other reading during the year.

The latest outflow represents the 27th consecutive weekly withdrawal and the 38th outflow in 39 weeks, for a net redemption of $25.2 billion over that span.

The $968 million outflow for the first two weeks of the year is in contrast to last year, which showed a net inflow of $2.1 billion. For the full-year 2014, outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report, the change due to market conditions turned positive, at $152 million, for a 0.17% advance against total assets, which were $87.9 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 8%


China central bank tightens loan, deposit measurement as shadow banking surges

BEIJING (Reuters) – China’s central bank is adjusting the way it measures bank deposits and loans, in a bid to increase supervision of cash in the banking system at a time shadow bank activity has seen a resurgence.

The move comes as freshly-released December loan data shows that the shadow banking portion of what China calls “total social financing” was the highest since January 2014, reversing the trend of shrinking off-balance sheet credit seen in most of last year’s second half.

The steps the People’s Bank of China (PBOC) are taking also show that its recent tweak to how loan-to-deposit ratios banks are calculated was not a form of monetary easing, but instead a preliminary step to applying further pressure on shadow banking.

According to a transcript of an official briefing to domestic media seen by Reuters on Thursday, the PBOC will include deposits by non-deposit-taking institutions made in accounts at banks deposit-taking institutions in calculations of deposits, and will include lending by deposit-taking institutions to non-deposit-taking institutions in loan calculations.


The transcript made particular mention of margin deposits from brokerages at banks. Regulators have signalled concern that a massive stock market rally set off in November is at risk of over-heating, given large quantities of cheap leverage provided through brokerage margin accounts.

The transcript quoted comments by Sheng Songcheng, the head of the PBOC’s statistics department, during a question-and-answer session to which foreign media were not invited.

“The changes in calculating deposit and loan items are aimed at making (Chinese standards) gradually be in line with usual international practices,” Sheng was quoted as saying.

“As these changes are aimed at more accurately reflecting the reality of social deposits loans, as well as liquidity conditions, people should not read too much into them on the policy front.”

Despite the crackdown, off-balance sheet lending led by entrusted loans and trust loans shot up in December, official data showed on Thursday, even as traditional yuan loans fell far short of expectations.

“Shadow banking is back with a vengeance, and I’m not sure why the year ended this way but it’s clear that there is a lot of money creation outside of the banking system,” Dariusz Kowalczyk, an economist at Credit Agricole CIB.

In December, Chinese banks extended far less credit than expected in December, despite instructions by the PBOC to lend more in the last months of 2014 to support the slowing economy.

(Reporting by the Beijing Newsroom; Additional reporting by Lu Jianxin and Pete Sweeney in SHANGHAI, and Jake Spring in Beijing; Editing by Richard Borsuk)

FinanceBanking & Budgetingbank depositsPBOCbanking system […]

Feds To Write New Rules For Payday Loans: WSJ – Huffington Post

Image reuters_logo.jpg

NEW YORK, Jan 4 (Reuters) – A U.S. regulator focused on consumer protection is planning the first federal regulations ever for lenders that make small loans to borrowers seeking cash before their next pay day, The Wall Street Journal reported on Sunday.
The Consumer Financial Protection Bureau will convene a panel of small lenders early this year to discuss possible rules for payday loans designed to make them easier to repay, the report said.
Consumer advocates say the loans, which can carry annualized interest rates of more than 500 percent, can trap primarily low-income borrowers in a cycle of mounting debt. They are concerned in particular about online lenders, which they say sometimes skirt state laws for payday loans.
Until now, payday lenders have been regulated by states rather than by the federal government, but the CFPB and the Federal Trade Commission have both sued payday lenders for abusive practices.
The CFPB also ordered payday lender ACE Cash Express in July to pay $10 million to settle accusations that it had used unfair debt collection practices such as threatening to sue borrowers to pressure them into taking out new loans.
(Reporting by Emily Flitter; Editing by Leslie Adler)


Nama generates €8.6bn in cash in 2014

The National Asset Management Agency (Nama) generated cash of some €8.6 billion in 2014, thanks to a healthy returnfrom the sale of loans and property during the year.

According to an end of year statement from the State’s “bad bank”, some € 8.6 billion in cash was generated in 2014, including € 7.8 billion from the proceeds of asset disposals, bringing total cash generated to date up to €23.7 billion.

Nama chairman Frank Daly and Nama CEO Brendan McDonagh said that 2014 was a “tremendous year in terms of cashflow generation and accelerated debt paydown and in terms of Nama making a significant contribution to the delivery of social housing, private housing and the Dublin Docklands SDZ and to employment preservation in trading businesses.”

Slide in corporate insolvencies sign of recovering economy Weak global manufacturing figures suggest more central bank action Property prices to continue to rise in 2015 – Sherry Fitzgerald

At end-2014, Nama held cash and cash equivalent balances of € 1.8 billion, after making Nama senior bond redemptions and other debt repayments totalling € 16.6 billion since inception.

To date, Nama has realised proceeds of € 18.7 billion from the sale of loans and property and other assets held as security; € 7.8 billion (42%) of this was realised in 2014, including the sale of Project Eagle ((loans secured by assets controlled by Northern Ireland debtors), and Project Tower (loans secured by investment and developments assets, mainly in Ireland, Britain and Germany).

In its statement, Nama said that a “strong flow” of asset and loan portfolios will be offered to the market during the course of 2015, assuming that current investor interest is sustained.

On the funding front, Nama has approved a total of € 3.2 billion in advances to debtors and receivers, and it said that it is prepared to advance additional funding for commercially viable Irish projects, including the Dublin Docklands development programme.

With respect to residential housing, Nama is on target to meet its goal of completing 4,500 additional units by the end of 2016, with more than 1,000 units already delivered.

By the end of 2014 Nama had delivered over 1,000 social housing units, and predicts that a further 1,000 houses and apartments will be taken up by local authorities and housing bodies in 2015.

Nama also said that it has played a “major part” in facilitating the examinership of trading businesses during 2014, which resulted in safeguarding close to 1,000 jobs,


Cash-strapped Ukraine expects IMF loan decision by late Jan

KIEV (Reuters) – Ukraine expects the International Monetary Fund to reach a decision on the disbursement of its next multi-billion dollar instalment of financial aid by late January, a senior presidential official said on Wednesday.

Ukraine has so far received two tranches of aid under the IMF programme worth a combined $4.6 billion, under a $17 billion (11 billion) bailout package agreed in April to shore up its foreign currency reserves and support the economy.

The third payment was delayed as the IMF waited for the formation of a new government, which has pledged to carry out the extensive reforms required under the bailout.

Ukrainian presidential adviser Valeriy Chaly said an IMF mission would visit Kiev in early January for the next round of talks on the loan programme, which the country has asked to have increased.

“We expect that all the decisions on macro-financial help will be reached by the last 10 days of January,” Chaly said in a televised briefing.

Ukraine’s foreign currency reserves have more than halved since the start of the year to a 10-year low due to gas debt repayments to Russia and efforts to support its struggling currency, the hryvnia.

Prime Minister Arseny Yatseniuk said Kiev, facing the additional financial burden of the rebellion in its eastern territories, risks defaulting unless Western donors come up with more funds in addition to what has already been pledged.

First deputy finance minister Ihor Umansky said on Wednesday that it was too soon to talk of restructuring the country’s debt.

“The question of restructuring … is not currently a subject of discussions,” he said at a briefing. “Until the aid package is agreed for Ukraine, it’s too early to discuss this.”

(Reporting by Natalia Zinets and Pavel Polityuk; Writing by Alessandra Prentice; Editing by Hugh Lawson)

Politics & GovernmentBudget, Tax & EconomyInternational Monetary FundUkraineforeign currency reserves […]

Star Bulk’s liquidity and cash flow


Star Bulk has positive 3Q14 earnings and strong fleet after acquisitions (Part 11 of 15)

(Continued from Part 10)

Star Bulk’s net cash operating activities

In this part of the series, we’ll discuss Star Bulk Carriers Corp.’s (SBLK) cash flow numbers given the company’s rapid expansion of its fleet size through acquisitions and other related developments. Investing and financing activities have reflected significant movements, while operating activities were affected by the company’s reported net loss. Star Bulk has industry peers (SEA) such as Diana Shipping Inc. (DSX), Knightsbridge Shipping Ltd (VLCCF), Navios Maritime Holdings Inc. (NM), and Eagle Bulk Shipping Inc. (EGLE).

For the nine months ended September 30, 2014, Star Bulk Carriers Corp. (SBLK) recorded net cash provided by operating activities of $7.7 million compared to $22.4 million in the year-ago period. The time charter equivalent (or TCE) rate for the same period declined to $12,813 from $14,414 in the year-ago period. The dip in net cash for operating activities was led by the net loss recorded by Star Bulk compared to net income in the year-ago period. Also, there was a negative movement in working capital of $6.3 million during the first nine months of 2014 compared to a positive movement of $3.4 million during the first nine months of 2013.

Net cash investing activities

Star Bulk’s net cash used in investing activities for the nine months ended September 30, 2014 and 2013 stood at $144.5 million and $9.9 million, respectively. Net cash used in investing activities for the 2014 period consisted of $31.4 million in advances for the company’s newbuilding vessels compared to $29.8 million in the same period a year ago. Also, the total acquisition of secondhand vessels, including Excel’s vessels, and fixed assets stood at $198.9 million.

Star Bulk recorded a net increase of $10.8 million in restricted cash compared to a decrease of $7.6 million in the year-ago period. Hull and machinery insurance proceeds amounted to $0.6 million compared to $4 million in the year-ago period. Also, the company assumed $96.3 million cash as part of the Ocean Bulk and the Pappas Companies acquisitions.

Net cash financing activities

Star Bulk’s net cash provided by financing activities for the nine months ended September 30, 2014, stood at $176.8 compared to $48.0 million in the year-ago period. For the nine months ended September 30, 2014, net cash provided by financing activities consisted of loan proceeds of $139.0 million from post-delivery financing of newbuilding vessels and $59.8 million drawn under the Excel Vessel Bridge Facility for the financing of the acquisition of the Excel vessels, as well as financing fees amounting to $0.9 million and loan installment payments amounting to $21.2 million.

Continue to Part 12

Browse this series on Market Realist:

Part 1 – Overview: Star Bulk Carriers’ earnings and fleetPart 2 – Perfect timing for Star Bulk’s fleet acquisitionPart 3 – A growing fleet increases Star Bulk’s voyage revenuesFinance […]

Leveraged Loan Issuance Slumps To $1.6B Amid More Cash Outflows


Leveraged loan issuance in the U.S. slid to $1.6 billion this week as investors continue to pull cash out of the asset class and the market sets its sights on 2015.

The paltry weekly volume is the smallest total since the dog days of August. With the recent activity, year-to-date leveraged loan issuance in the U.S. now stands at $524.4 billion, down from the $605.2 billion seen at this point last year (the full-year 2013 total was $606.7 billion).

While volume tailing off at year-end might not constitute big news in the loan market, the pace at which investors are retreating from the market is. Indeed, institutions withdrew another $1 billion from the asset class this week, making for a net $13.2 billion withdrawal so far this year, according to Lipper.

The siege on loan funds is so pronounced that the SEC has taken interest, as detailed in this New York Times story yesterday. (More testimony of how impressive the outflows are: The Times usually does not devote significant column inches the leveraged loan market). Perhaps raising most eyebrows in this story: “critics” of leveraged loan funds suggesting that any asset that does not complete settlement within seven days be defined as “illiquid”. Leveraged loan transactions take notoriously long to settle, of course, oftentimes weeks.

To the market proper, bifurcation remains the word, according to LCD’s Chris Donnelly:

Arrangers continued to rework to meet the yield expectations of investors on the most challenging transaction still left in market, but there was plenty of demand for better-rated and less leveraged transactions, allowing other issuers to extract pricing concessions despite the challenging market conditions. In short, it’s still a market of haves and have-nots, exacerbated by sector pressures, stepped-up retail outflows, and year-end fatigue.

As for new issues, there were two transactions out of the handful that emerged this week backing dividends to private equity sponsors. The first is a $300 million credit for Cengage Learning (Apax Partners). The other is a $205 million credit for Vogue International (Carlyle).


Outflows From Leveraged Loan Funds Deepen For 22nd Consecutive Withdrawal


Cash outflows from bank loan funds deepened to $1.05 billion for the week ended Dec. 10, from $511 million in the previous week, according to Lipper. The latest reading represents the 22nd consecutive weekly withdrawal and the 33nd outflow in the past 35 weeks, for a net redemption of $20.1 billion over that span.

The current reading reflects mutual fund outflows of $952 million, plus a $94 million outflow from exchange-traded funds. The influence of ETFs represents 9% of the outflow for the week, up from 1% last week but down from 11% the prior week. The current reading is the largest ETF outflow in seven weeks.

The trailing four-week average is now negative $586 million, compared to negative $424 million last week. The current observation is the deepest in four weeks.

The year-to-date fund-flow reading pushes deeper into negative territory, at roughly $13.2 billion, and it’s mostly mutual funds, with ETFs slightly negative at $204 million for the year, or just 2%. In the comparable year-ago period, inflows totaled $51.1 billion, with 10% tied to ETFs, or roughly $5.3 billion.

The change due to market conditions was negative $368 million, or a decline of nearly 1% against total assets of $93.4 billion at the end of the observation period. The ETF segment comprises $7.8 billion of the total, or approximately 8%. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.


Leveraged Loan Fund Outflows Expand To $511M, Led By Mutual Funds


Cash outflows from bank loan funds widened to $511 million for the week ended Dec. 3, from $412 million in the previous week, according to Lipper. The latest reading represents the 21st consecutive weekly withdrawal and the 32nd outflow in the past 34 weeks, for a net redemption of $19.2 billion over that span.

The current reading reflects mutual fund outflows of $507 million, plus a negligible $4 million outflow from exchange-traded funds. The influence of ETFs represents just 1% of the outflow for the week, down from 11% last week.

The trailing four-week average is negative $424 million, compared to negative $375 million last week. This reflects the omission of the $1.66 billion outflow reading from six weeks ago. Recall that was the third-largest outflow on record and the highest since $1.3 billion in the week ended Aug. 31, 2011.

The year-to-date fund-flow reading pushes deeper into negative territory, at roughly $12.1 billion, and it’s mostly mutual funds, with ETFs slightly negative at $110 million for the year. In the comparable year-ago period, inflows totaled $50.6 billion, with 10% tied to ETFs, or roughly $5.3 billion.

The change due to market conditions was negative $128 million, with total assets at $95.1 billion at the end of the observation period. The ETF segment comprises $7.3 billion of the total, or approximately 8%. – Joy Ferguson