(Bloomberg) – Hopes for a swift restructuring of Grupo Famsa SAB de CV’s bondholders, whose investments plummeted 60% when the pandemic broke out, fell to the ground when the firm sought bankruptcy protection in Mexican courts, a process that could take years.
Famsa was forced to waive Chapter 11 proceedings in New York after local regulators revoked its banking license, ending its ability to allow customers to buy on credit, and making some financing scheme unsustainable. Now Famsa must resort to a process called commercial bankruptcy.
It’s a setback for the 50-year-old firm that sells furniture and appliances and operates 300 stores throughout Mexico. The US process is considered much more transparent and faster than bankruptcy.
“Companies really don’t want to default, but this crisis is hitting harder than any normal recession,” said Roger Horn, a senior strategist at SMBC Nikko Securities America in New York. “Airlines, airports and hotels are examples of companies with a drop in revenue of about 90% or more, so there really is no way to continue paying the debt.”
Famsa bonds, which have barely moved since March, were flat last week with a low price at 32.8 cents on the dollar.
On average, Mexican corporate bonds returned 0.6% last week. Grupo Aeroméxico SAB de CV bonds led the gains, yielding 5.6% thanks to yields that ended the week at 52%, 450 basis points below the previous week.
Aeromexico is facing its own procedures under Chapter 11. The airline, hit by a sharp drop in global travel, is preparing a financing plan before its next hearing on August 19. July passenger traffic decreased 73%.
The public debt denominated in pesos remained stable after the debt in dollars increased for the sixth week. Investors will be on the lookout for a rate decision that the central bank will release on Thursday, when policymakers are expected to cut benchmark rates 50 basis points to 4.5%.
“Mexico’s swap curve flattened down last week, and interest rates at the front end of the curve rose much more than at the far end,” said George Lei, strategist at Bloomberg FX. “This trend may continue before Banxico’s rate decision on Thursday.”
Economists who participated in the last Citi / Banamex survey published last week expect rates to remain at 4.5% until the end of 2021. Meanwhile, the TIIE swap curve discounts a relaxation of about 90 bp for the rest 2020 with a monetary policy rate that will close the year at 4.1%
Mexican companies did not announce new debt sales last week. The Port of Liverpool SAB de CV, Banco Actinver SA and Genomma Lab Internacional SAB will also sell debt this year.
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WHAT TO SEE:
August 11: Industrial production, sales in comparable stores of the National Association of Self-service and Department Stores (ANTAD) August 12: Creation of formal employment August 13: Interbank rate
Liverpool will sell up to 5,000M pesos in local bonds on August 12 Banco Actinver will sell 1,000M pesos in local bonds on September 9 Genomma Lab will sell 3,000M pesos in 3-year bonds this year
Original Note: Famsa Holders Face Long Road in Local Court: Mexico Fixed Income
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