El Salvador is making a comeback in the international bond market with an innovative two-part issuance. This includes a unique bond that will offer investors enhanced interest rates unless the nation achieves credit rating improvements or secures a deal with the International Monetary Fund (IMF).
The initial segment of this financial maneuver involves the issuance of dollar-denominated debt maturing in 2030. The discussion around the pricing of these bonds has started in the vicinity of 12%, with repayment beginning in 2028. This information comes from sources familiar with the development.
The second part of the offer is a bond that pays interest only, with the rate contingent on El Salvador's credit rating or a successful negotiation with the IMF. Should El Salvador not manage to secure at least two credit rating upgrades to a 'B' status, which is five levels below investment grade, or fail to agree on a loan package with the IMF by October 2025, the interest rate on this bond will increase, as per insiders.
This marks El Salvador's first foray into the bond market in almost four years, during which time the nation, rated as junk, has seen its existing debt instruments rally significantly. Part of the funds raised from this new issuance is earmarked for the repurchase of existing notes due in 2025, 2027, and 2029, totaling $1.75 billion in outstanding debt. The specifics of the buyback offer, which concludes on April 15 at 5 p.m. New York time, remain undisclosed.
BofA Securities Inc. has been appointed to manage both offerings. This move comes after El Salvador's debt has yielded impressive returns of 215% since July 2022, thanks to strategic financial maneuvers by President Nayib Bukele's administration, including two bond buybacks and refinancing efforts. However, the momentum has recently slowed due to fiscal concerns and diminishing prospects of an imminent IMF deal.
Fitch Ratings and Moody’s Ratings place El Salvador seven notches below investment grade, while S&P Global Ratings positions it slightly higher. The country's last bond issuance was during the peak of the pandemic, with a $1 billion debt priced at a 9.5% coupon rate. Since then, only four nations have issued dollar bonds at higher interest rates.
El Salvador's strategic re-entry into the global debt market underlines its ongoing efforts to stabilize and improve its financial standing, amidst challenges and opportunities alike.
