LatinFinance - July 2013 - 20

Debt restructuring

Rites of spring
By Mariana Santibáñez

20 LatinFinance

July 2013

Mexican auto parts manufacturer San Luis has learned the hard way
that life after default is not so easy

istockphoto

L

ast September, Mexico City-based
auto parts manufacturer SanLuis
Rassini saw an opportunity to try
its luck.
Appetite for high yield bonds was
strong. And market conditions seemed
ripe for a return to the international bond
markets.
The company had enough cash on
hand to refinance its bank debt, but low
rates in the bond markets tipped the
balance in favor of a high-yield issue. The
borrower began marketing the Ba3/B/
B+ rated 10 non-call five-year bond,
targeting a deal size of $200 million to
$250 million.
But during the marketing process,
bookrunners Bank of America Merrill
Lynch and JPMorgan came across what
would turn out to be an overwhelming
investor concern. The manufacturer’s
subsidiary SanLuis Co-Inter (SISA) had
defaulted in 2010 and the failure to pay
was its second in less than a decade.
Investors wanted answers on how SanLuis
would navigate the auto industry’s
next cyclical downturn and maintain
profitability.
Leads started pricing at 9%-area yield,
which seemed justified given the firm’s
default history. Yet bookbuilding lagged
at initial price talk and SanLuis revised to
a wider 10% level. Despite taking $200
million in orders, the company ultimately
decided that a double-digit yield did
not justify execution amid the low rate
environment. On the advice of its bankers,
it threw in the towel.
Alberto Moreno, senior director of
corporates at Fitch Ratings, points out
that “pricing levels have to do with the
perception of the market and history
of debt restructurings.” Previous
restructurings have coincided with the
cycles in North America and fall in line

Shock absorbers: SanLuis struggles to bounce back
with similar situations to other auto
suppliers, he says.
Some investors argue that SanLuis has
been a casualty of the auto industry twice,
having defaulted and restructured in 2002
and again in 2010.
Ownership and management has
changed little since its first default, and
radical changes have yet to be seen in its
business plan, some point out. And while
the North American auto industry is in an
upswing, the highly cyclical industry will
eventually head downwards again. 

Restructuring accolades

SanLuis’s first default came after its three
biggest US customers – Ford, General
Motors and DaimlerChrysler – sharply
reduced purchases in response to falling

retail sales. By September 2001, SanLuis
was so short of cash that management had
to choose between continuing operations
and paying bondholders, according to the
company. Investors at the time, however,
told LatinFinance that they questioned
whether the move had been tactical, to
cut secondary trading prices and open the
door for a bargain buyback.
Nevertheless, that month, SanLuis
was unable to make a coupon payment
on a $200 million bond. It also failed to
meet its obligations on its $77.5 million
European commercial paper debt and on
$13.8 million of other debt. The holding
company went on to restructure the
$291.3 million of defaulted debt.
SanLuis offered bondholders a deeply
discounted cash buyback offer, and a par
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