Mexico Kicks Off Debt Offering to Support Pemex
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The offering, which is expected to price Monday, will consist of dollar-denominated debt maturing August 2030, according to a person familiar with the matter. Pricing guidance is about 175 basis points over Treasuries, down from initial price talk of 200 basis points, added the person, who requested anonymity because the information is private.
The deal will be in the form of pre-capitalized securities, or P-Caps, a type of instrument used in asset-backed finance that will allow Mexico to borrow billions of dollars from debt investors to support Pemex while keeping the obligations off its books.
Bloomberg News reported last week that Mexico was looking to raise as much as $10 billion with the transaction — part of a plan by President Claudia Sheinbaum's administration to shore up the struggling state oil producer, which has a debt load of almost $100 billion, according to the company's results released Monday.
Pemex posted a net income of 59.52 billion pesos ($3.2 billion) for the second quarter, the first profit in more than a year. The company was boosted by currency moves as the peso straightened amid a rally in risk assets, and also benefited from a decrease in the cost of sales.
P-Caps
Mexico, through an entity named Eagle Funding LuxCo., will sell the so-called P-Caps and use the proceeds of the sale to buy a portfolio of US government debt including Treasuries, according to a filing last week. Pemex will then take that portfolio and use it as collateral for loans through the repurchase market, using the proceeds as it sees fit, according to an offering memorandum seen by Bloomberg.
If Pemex isn't able to pay back the loans, the banks will seize the collateral and end up whole. In that scenario, the investors in P-Caps would lose their collateral, and end up with sovereign debt from Mexico, according to a presentation seen by Bloomberg.
Fitch Ratings placed Pemex on Ratings Watch Positive on July 22, saying that if successful, the transaction will improve the Mexican government's track record of support for the company. The reassessment may result in a multiple notch upgrade for the driller into the BB category, Fitch said.
--With assistance from Vinícius Andrade and Michael Gambale.
(Updates with guidance in second paragraph and company's latest results starting in fourth paragraph)
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