BlackRock and Other Funds Circle Troubled Argentine Companies

(Bloomberg) -- BlackRock Inc., Carval Investors LLC and other funds that specialize in distressed debt are in early talks to finance Argentina-based companies that have struggled to access international bond and loan markets.

Albanesi SA, MSU Energy, Genneia SA, Pampa Energia SA and YPF SA are among the first candidates for the financing, according to people with knowledge of the plans. For the companies, it would mean much-needed cash to finance projects or acquisitions, though at a higher than usual cost. That’s because Argentina’s deteriorating finances and corruption have made such hedge funds the only places they can turn for funds.

For the investors, it is a chance to get a stake in companies with good fundamentals, which have suffered because of their inability to access global markets, and the fallout from the recent "notebook" corruption scandal.

The financing would be through so-called mezzanine loans, the people said, speaking on condition of anonymity because the talks are private. That structure, unusual in Argentina, could give the investors potential access to equity stakes, and comes as traditional sources like banks are leery about lending to Argentine companies.

"Obviously the Argentina sovereign backdrop makes it very likely that the international bond markets will stay closed to corporates until that is resolved," said Roger Horn, senior emerging markets strategist at SMBC Nikko Securities America in New York.

Infrastructure Projects

MSU, Albanesi and Genneia have collectively been seeking around $750 million, according to company statements. The first of these loans could be made to finance an acquisition. Albanesi, which generates and sells electricity, is seeking a buyer for one of its assets, according to the people familiar. Before the corruption scandal broke, MSU had been in talks on a $250 million loan from banks including Citigroup Inc. and Itau Unibanco Holding SA.

Investors including BlackRock are interested in financing those companies as well as six other business partnerships, two of the people said. They need between $3 billion and $4 billion to finance infrastructure projects and have all suffered after being linked with the "notebooks" scandal, in which a former chauffeur for a government official kept detailed notes of bribe deliveries.

Other funds considering such deals are Gramercy Investment Fund, Apollo Investment Corp. and Chilean Moneda Asset Management SA, the people said.

Genneia isn’t holding talks with any of the funds, a spokesman said. All other companies and funds declined to comment, with the exception of Carval and Pampa, which didn’t return calls for comment.

Equity Kickers

The mezzanine financing would use equity kickers or preferred stock, the people said. Equity kickers, often used for leveraged buyouts, can give lenders a stake in a company if a particular event is triggered, and often come at high rates.

With Albanesi’s 2023 bond yielding 14.8 percent and MSU’s 2025 bond yielding 13.5 percent, this structure may be the only way to obtain financing now at a reasonable price, two of the people said. All these companies have secured government-backed repayments for their projects.

The talks are unlikely to conclude until a final agreement is reached between Argentina and the International Monetary Fund, expected as soon as this week.

More Support

"The IMF will provide more support to Argentina," Argentine President Mauricio Macri said in an interview with Bloomberg TV on Monday, while declining to provide details such as how much money will be added until the new agreement is made public in the coming days. How much the IMF expands the country’s credit line by will help the funds decide the exact terms of the deals, including their cost, the people said.

While the debt is expensive, at least certain projects can continue, such as the building of highways in the case of the partnership infrastructure projects. The question, Horn said, is on what terms such financing will actually come. "It’s going to be expensive --maybe too expensive to rush into."

To John Yonemoto, chief investment officer at Albright Capital, the economy gives them plenty of opportunity to set favorable terms for themselves. "Argentina’s policies have resulted in years of under-investment, creating a fertile environment for investors who seek the negotiating leverage and attractive investment structures that can flow from capital shortage," he said.

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