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Lpc citi adding tranche to us$25bn petco loan with no libor floor


Jan 14 Citigroup is adding a new tranche to the US$2.5bn loan backing the buyout of Petco Animal Supplies that will not have a Libor floor to protect returns for Collateralized Loan Obligation (CLO) funds, the main buyers of leveraged loans. Libor floors guarantee minimum returns for investors, but are threatening CLO funds' returns as Libor rates rise. The new tranche with no Libor floor is being added after the deal received pushback from investors, sources said.

The new tranche may be around US$500m in size, depending on demand. It will be offered with a rate of 500bp and a discount of 98 cents on the dollar, the source said.

The existing term loan which has a Libor floor will now pay 475bp with a 1% floor at 98 cents.

The total size of the term loan will remain at US$2.5bn and be adjusted based on demand for the no-floor tranche.

Mexicos banregio bets on small business loans, but risks remain


Oct 20 Mexico's Banregio Grupo Financiero is dwarfed by industry titans like Bancomer and Citibanamex but that seems to suit its small and medium-sized business clients just fine, allowing it to dominate what has been a growing market segment. Banregio, along with other banks helped by government policies aimed at increasing small businesses' borrowing options, has succeeded in focusing on the once neglected business segment, but a recent central bank rate hike may lead to a reassessment. Banregio, Mexico's largest lender to small and medium enterprises by portfolio size, reported a return-on-equity of 18.4 percent at the end of June, nearly six percentage points above the average of the country's 47 banks. Its shares, up more than 30 percent so far this year, have far outpaced rivals like Grupo Financiero Banorte and Grupo Financiero Santander Mexico."As a bank, we think there are still a lot of businesses to support," said Enrique Navarro, financial director at Banregio. He noted the bank had pushed up profits by taking advantage of opportunities within the sector, in addition to growing its mortgage portfolio and expanding its presence around the country. The regional bank, which has 140 branches, is expected to open another seven retail locations by the end of the first half of 2017 to primarily serve more small and medium-sized businesses, Navarro said. Such moves have now put mid-size Banregio at the leading edge of a broader industry push to boost credit to smaller businesses with less than 250 million pesos ($13.4 million) in annual sales, a sector long an afterthought for Mexican banks in pursuit of lucrative larger corporate clients.'LARGER RISK'

By July 2016, Mexico's commercial banking system had extended a total of 424 billion pesos ($23 billion) in loans to micro, small and medium enterprises, a 25 percent increase from the same month two years ago, according to the country's bank regulator."We have seen a change - not yet substantial, but pronounced - that small and medium-sized companies are now preferring to move to the banking segment instead of suppliers," said German Velasco Robles, an analyst at BBVA Bancomer in Mexico. He said the trend was partially due to a battered Mexican peso, which had led companies to seek financing in local markets rather than from foreign suppliers. Bank interest rates stood at an average of 11.34 percent annually for micro, small and medium-sized businesses, while suppliers charge 6 percent to 12 percent, according to data from the central bank and Canaco Mexico, an association representing businesses.

But while Banregio and a number of larger rivals are actively pursuing businesses that previously sought funding from suppliers, rising interest rates loom as an obstacle. In the latest of a series of increases, Mexico's central bank - reacting to Mexican peso depreciation partially linked to U.S. elections - raised the key interest rate by 50 basis points to 4.75 percent on Sept. 29. That put it at its highest level since the 2008-2009 global financial crisis. That could lead to slower growth in the financial sector that would likely cause banks to tighten credit, said analysts such as Margarita Chamorro Camara of local brokerage Finamex. MORE HESITANT?

"If banks are going to reduce the amount of credit they could probably start with the most risky sectors, which could be the small and medium-sized businesses that have a larger risk," she said. While the banking sector's portfolio of overdue loans shrunk by 21 percent for large companies in the year before July 2016, it grew by 13 percent for small and medium sized businesses during the same period, according to Mexico's National Bank and Securities Commission. The rate hikes come as credit has grown by more than five times the country's annual gross domestic product, according to Mexico's bank association, partly due to growing corporate loan portfolios and government efforts to strengthen smaller businesses by guaranteeing a portion of commercial credit. But, Velasco said, that could change as higher rates make smaller businesses more hesitant to seek loans. Navarro, Banregio's finance director, said the hike would have no impact."The cost of credit is still very accessible," he said, adding that the central bank's key lending rate was far below its level of 8.25 percent at the outset of 2009. Shares in Banregio, which sets roughly 70 percent of its total portfolio at a variable interest rate, fell 1.9 percent, more sharply than five other banks listed on Mexico's IPC index on the day of the rate announcement. But the stock went on to hit a record last week and is still trading just off those highs.

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