(Bloomberg) -- Fitch Ratings says it’s still punishing Mexico’s companies for past sins. Bond investors, though, are proving to be more forgiving.
Even after Mexico rewrote bankruptcy laws last year that had been exploited to the detriment of bondholders, Fitch’s Richard Hunter says that legacy is one of the reasons the debt rater gives the nation’s borrowers lower grades than those in other Latin American countries.
The penalty is most apparent when it comes to Mexico’s junk-rated companies. At 4.75 times, their leverage ratio is well below the 7.69 times for companies in Brazil, Chile, Colombia and Peru with speculative-grade ratings from Fitch.
“We have a lot of low leveraged corporates in Mexico but they’re high-yield because of concerns about corporate governance,” Hunter, the global head of corporate ratings at Fitch, said in an interview in Santiago.
Still, the impact of Fitch’s lower ratings for Mexican companies is hard to detect in the bond market. Average borrowing costs for the country’s companies, from the most credit-worthy to the least, are 4.6 percent, versus 7.1 percent for peers in Central and South America.
“As an investor, the rating doesn’t decide if I’m going to invest,” Claudio Robertson, the head of fixed-income trading at Investment Placement Group, said by telephone from San Diego. “One looks at other things that are more up to date.For me, the rating doesn’t move the needle.”
Vitro Case
Robertson also said Mexico’s new bankruptcy laws provide more protections to creditors.
President Enrique Pena Nieto overhauled the law after glassmaker Vitro SAB used a loophole following its 2009 bond default to become its own biggest creditor and push through a restructuring over bondholders’ objections in local courts.
A U.S. judge later rejected the settlement. While five Mexican companies defaulted in 2013, there’s been only one since the new rules governing bankruptcies were published in the official gazette in January 2014, according to Moody’s Investors Service.
Fitch said it doesn’t expect to change its rating procedure until it has seen more examples of companies using the new bankruptcy law.
Mexico’s peso weakened 0.1 percent Monday to 15.253 per dollar at 1:20 p.m. in New York. Before Mexico changed its bankruptcy law, a World Bank ranking of countries based on enforcement of contracts placed the nation 71st, below Russia and Argentina.It’s now 57th, above Argentina and Chile.
Improved Regime
The old bankruptcy laws allowed steelmaker Altos Hornos de Mexico SA to spend 13 years negotiating with creditors while it continued to operate. In December the company finally asked a judge to approve an agreement that allows three years to pay defaulted debt from 1999.
“The Mexican bankruptcy regime has improved,” Jennifer Gorgoll, a money manager who invests in Mexican debt at Neuberger Berman, said by telephone from Atlanta. “It’s not perfect, but it’s better than it previously was, and it’s on a relatively sound footing compared to bankruptcy codes in the rest of Latin America.”
bloomberg.com
Even after Mexico rewrote bankruptcy laws last year that had been exploited to the detriment of bondholders, Fitch’s Richard Hunter says that legacy is one of the reasons the debt rater gives the nation’s borrowers lower grades than those in other Latin American countries.
The penalty is most apparent when it comes to Mexico’s junk-rated companies. At 4.75 times, their leverage ratio is well below the 7.69 times for companies in Brazil, Chile, Colombia and Peru with speculative-grade ratings from Fitch.
“We have a lot of low leveraged corporates in Mexico but they’re high-yield because of concerns about corporate governance,” Hunter, the global head of corporate ratings at Fitch, said in an interview in Santiago.
Still, the impact of Fitch’s lower ratings for Mexican companies is hard to detect in the bond market. Average borrowing costs for the country’s companies, from the most credit-worthy to the least, are 4.6 percent, versus 7.1 percent for peers in Central and South America.
“As an investor, the rating doesn’t decide if I’m going to invest,” Claudio Robertson, the head of fixed-income trading at Investment Placement Group, said by telephone from San Diego. “One looks at other things that are more up to date.For me, the rating doesn’t move the needle.”
Vitro Case
Robertson also said Mexico’s new bankruptcy laws provide more protections to creditors.
President Enrique Pena Nieto overhauled the law after glassmaker Vitro SAB used a loophole following its 2009 bond default to become its own biggest creditor and push through a restructuring over bondholders’ objections in local courts.
A U.S. judge later rejected the settlement. While five Mexican companies defaulted in 2013, there’s been only one since the new rules governing bankruptcies were published in the official gazette in January 2014, according to Moody’s Investors Service.
Fitch said it doesn’t expect to change its rating procedure until it has seen more examples of companies using the new bankruptcy law.
Mexico’s peso weakened 0.1 percent Monday to 15.253 per dollar at 1:20 p.m. in New York. Before Mexico changed its bankruptcy law, a World Bank ranking of countries based on enforcement of contracts placed the nation 71st, below Russia and Argentina.It’s now 57th, above Argentina and Chile.
Improved Regime
The old bankruptcy laws allowed steelmaker Altos Hornos de Mexico SA to spend 13 years negotiating with creditors while it continued to operate. In December the company finally asked a judge to approve an agreement that allows three years to pay defaulted debt from 1999.
“The Mexican bankruptcy regime has improved,” Jennifer Gorgoll, a money manager who invests in Mexican debt at Neuberger Berman, said by telephone from Atlanta. “It’s not perfect, but it’s better than it previously was, and it’s on a relatively sound footing compared to bankruptcy codes in the rest of Latin America.”
bloomberg.com
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