Source: Petrobras Launches $7B Bond Deal

NEW YORK - Brazilian state-run Petroleo Brasileiro, or Petrobras, completed its four-tranche $7 billion bond deal in the U.S. credit markets Wednesday, according to a person familiar with the deal.

An investor participating in the sale said more than 400 accounts with $27 billion of orders vied to get a piece of it--about half were from Europe and Asia, about 40% were American, and the rest were local, he said.

The energy company's four-part bond deal is the largest emerging-market corporate bond deal to be sold in U.S. dollars since data provider Dealogic began keeping records in 1995.

Petrobras International Finance Co., the financing arm that issued the debt, sold $1.25 billion of 2.875% coupon, three-year bonds priced to yield 3.051%, a 275-basis-point spread over Treasurys, and $1.75 billion of 3.50% coupon, five-year bonds priced to yield 3.628%, a 290-basis-point spread. The bond spreads were improved twice in the two-day marketing period.

The deal also includes a reopening of 5.375% coupon bonds due in 2021 and 6.75% coupon bonds due in 2041. The 2021 bonds were priced to yield 4.796%, or 295 basis points over Treasurys, and the 2041 bonds were priced to yield 5.935%, a 295-basis-point spread.

A reopening means Petrobras enlarged the size of an outstanding issue. The 2021 and 2041 bonds were originally sold in the U.S. market on Jan. 20, 2011, at spreads of 195 basis points and 220 basis points, respectively. The 2021 deal was enlarged Wednesday by $2.75 billion; the 2041 offering was enlarged by $1.25 billion.

The reopening grows the 2021 deal to $5.25 billion outstanding, making it one of the largest deal sizes in the Barclays Capital index, the investor cited above said.

Jesse Fogarty, portfolio manager at Cutwater Asset Management, which participated in the sale, said the issue's huge demand was "driven by the high rating and attractive spread"--the extra yield over the Treasury rate.

"We are comforted by its large reserve base and its importance to the Brazilian economy," he said. However, the company has a "staggering" $225 billion in capital expenditures over the next five years, which is why the bonds offer some additional spread, he said.

Appetite varied from dedicated emerging-market funds to traditional investment-grade funds, including insurance companies and traditional asset managers.

After selling $6 billion to the U.S. markets in January 2011, Petrobras came to market with separate EUR 1.85 billion and GBP 700 million bond sales late last year. The federal oil company taps debt regularly to fund its massive, $225 billion investment plan to develop ultra-deep-water offshore oil fields.

Only 13 emerging market deals of more than $4 billion, corporate or sovereign, have been priced in the U.S. dollar market since 1995, according to Dealogic.

The expected ratings are A3 from Moody's Investors Service and BBB from Standard & Poor's. Fitch Ratings rated the bonds BBB, noting that bond payments are guaranteed by the parent company.

"Petrobras's ratings are supported by its leadership position in the Brazilian domestic energy market, its recognized expertise in offshore exploration and production, and its strategic importance to Brazil," Fitch said in its ratings report.

The deal was registered with the Securities and Exchange Commission.

Banco do Brasil Securities, Citigroup Inc., Itau Unibanco, J.P. Morgan Chase & Co., Morgan Stanley and Banco Santander were lead bookrunners.

Copyright (c) 2012 Dow Jones & Company, Inc.


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