Strategic Considerations: The Peruvian miner already laid out some of the terms of its debt renegotiation, but bondholders still need to negotiate coupon and cash sweep with Volcan. As part of the renegotiation, the bondholders and the banks will share collateral that includes shares, cash flow, and a mortgage on the assets. Banks will start receiving amortization payments next year.
- Low coupon likely to be rejected
- The agreement with banks was revealed last week
Bondholders of Volcan Compania Minera, the Peruvian miner, will likely become restricted this week to negotiate the terms of their debt refinancing, said two sources involved and a person familiar.
Holders of the company’s USD 365m 4.38% bond due 2026 will be asked to swap their notes into new secured 2030 notes, as reported. The discussions will be concentrated on the coupons of the new bond and the cash sweep, a first source said.
BofA Securities is one of Volcan’s advisers in this process and the bank might offer bondholders a low coupon, claiming Volcan is doing a refinancing and not a restructuring, said the first source. But bondholders are likely to fight it, the same source added.
Last week, Volcan told the market it had come to an agreement with bank lenders over the refinancing of its syndicated loan, as reported. The new USD 400m syndicated loan will mature in 2030 and will have amortizations of USD 10m in 2025, USD 20m in 2026, USD 25m in 2027, USD 35m in 2028, and USD 310m in 2029.
The loan will be guaranteed by a trust with cash flows, a trust with shares of Volcan’s subsidiaries, and a mortgage on the company’s assets. The interest rate will be a spread over the Secured Overnight Financing Rate (SOFR). The cash sweep percentage that will benefit banks has yet to be defined.
Bondholders will have the same collateral under the new 2030 notes. With a 7% coupon, recovery for the bondholders is around 80%, said the first source, adding it’s still unclear what the proposal will be.
Talks with creditors took a different turn after zinc prices began to increase, as reported. Volcan is expected to report an additional USD 100m in annual EBITDA because of higher prices, as also reported.
The Peruvian miner is working with BofA Securities, Moelis & Co, and Shearman & Sterling (now A&O Shearman) as financial and legal advisers, as reported. The ad hoc group of bondholders mandated Houlihan Lokey and Davis Polk as financial and legal advisers for the debt renegotiation, as reported.
by Maria Fernanda Blaser and Xochitl Herrera, Sao Paulo and San Luis Potosi