This hugely successful transaction marked Brazil’s triumphant return to external capital markets after a one-year hiatus during which its spreads widened to 2500 basis points over Treasuries on debt restructuring fears.
The unprecedented strength of demand for this new issue, with an order book in excess of $7.3bn from 430 dedicated and cross-over investors, validated the market’s acceptance of Brazil as a rapidly improving credit.
Brazil’s $1bn bond included for the first time the Coll-ective Action Clauses, widely viewed as coming closest to the model covenants developed by the Emerging Markets Creditor’s Association, and thus setting a precedent for such clauses for non-investment grade emerging market issuers.
The transaction was an emphatic endorsement of President Luiz Inacio Lula da Silva’s policies, calming fears of Brazilian financial crisis. More broadly, the transaction demonstrated investor appetite, not only for Brazil, but for all emerging markets as an asset class. This resulted in a strong rally in emerging market debt, equities and currencies across the board.
