Issuer Perspective: An interview with the President of Rioprevidência, Gustavo de Oliveira Barbosa
Last month, Rio de Janeiro’s state-owned pension fund, Rioprevidência raised $2 billion on the international markets at 6.24% with the sale of an asset-backed securitisation. Rioprevidência’s President, Gustavo de Oliveira Barbosa, spoke to us about his experiences during the transaction and why they felt that raising capital through a securitisation would benefit their pension fund.
Q. Congratulations on your recent bond issuance. Can you explain the thought-process behind your decision to issue?
The main objective to be achieved was to come up with a definitive solution for the short term Rioprev's cash flow liquidity adjustments, represented by the need of raising fund in 2014 by R$ 5 billion, and to ensure a better flexibility in accessing both local and international debt capital markets.
Q. Taking into considering the ratings process, preparing financial reports, etc. – can you give us an idea of how time-consuming it was just getting yourselves ready to issue?
Around 3 months.
Q. Can you explain the decision-making process you went through when you chose the bond market over the syndicated loan market?
As a public entity and according to Brazilian public sector laws and regulations (i.e. Fiscal Responsibility Law), there are some limitations to RioPrev to directly access the syndicated loan market. That`s why chosing the bond market makes more sense.
Q. Once you decided on the bond market, how did you decide on issues such as 144a vs. RegS; public vs. private placement; US dollars or another currency; whether to set up an MTN programme, etc.?
A transaction in a 144A / Reg S format, exclusive to sophisticated institutional investors was chosen with an specific sales process designed to reach strategic buyers of structured papers. Also, the access to the international capital markets offered the possibility to meet longer terms, higher volumes and more attractive price levels. Setting up a Master Trust Program, allows for maximum funding flexibility and asset leverage. A transaction denominated in dollars was also a better option since the oil revenues are dollar-related.
Q. What were the criteria by which you mandated banks for your transaction?
We considered BB Securities (Banco do Brasil group) for its two recent years activity and lead position in the international capital markets for Brazilian issuers and the strong relationship we have together. BNP Paribas is also a big player in the securitization products.
Q. What was your initial expectation on pricing? Did those expectations change during the process of preparing and/or issuing bonds? And consequently did you adjust your strategy at all?
We knew it would be priced off Petrobras curve, since it has been a “popular” and simple way to price other “comparable” offerings (drillship bonds primarily, where ultimate payments derive from the vessel). This transactions were priced about 200-250 bps above Petrobras primary curve. Those expectations didn’t change during the process and were not adjusted at all.
Q. What are the key take-away’s that you would advise other issuers to consider when planning a debut bond issuance?
The first thing (and most important one) is to have all internal process organized, a good corporate governace and all the people involved available and well prepared to provide the engaged parties with the necessary documents and information needed. And to select well recognized institutions and counsels very familiar with this type of transactions to work together.