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Petrobras Default Looms Under $90B Dollar-Denominated Debt
There is blood on the streets wherever you look in Brazil today, but probably of most interest to the hundreds of US asset managers (the ones managing your mutual funds) is what happens to Petrobras as it remains so widely held. As we noted below, bond prices are collapsing and default risk is soaring, and with the nation's currency collapsing amid the lower-for-longer oil prices, $90 billion of dollar-denominated debt could soon potentially be too burdensome for the company to repay.
Default Risk is exploding...
And as New York Shock Exchange details,
S&P recently lowered Brazil's credit rating to junk status. It later downgraded 60 corporate and infrastructure entities in Brazil, including cutting Petrobras (NYSE:PBR) two notches to "BB." Petrobras has been reeling from a corruption scandal that reportedly involved Petrobras' executives and directors awarding suppliers over-inflated contracts in exchange for kickbacks. The scandal has cost the company billions of dollars, and has been a blow to the reputation of Brazil's President Dilma Rousseff.
PBR is off about 70% over the past year, versus a 50% decline for the Brazilian ETF (NYSEARCA:EWZ) and flat growth for the S&P 500 (NYSEARCA:SPY). Investors should continue to avoid PBR for the following reasons:
Stagnant Revenue And Earnings
When it rains, it pours for Petrobras. In addition to the corruption scandal, a free fall in oil prices has stymied the company's revenue growth. For the first half of 2015, Petrobras' revenue was down 27% Y/Y from $71.4 billion to $52.0 billion, while EBITDA growth was flat. EBITDA margin increased to 26% in the first half of 2015 from 19% in the year-earlier period, as the company slashed cost of sales, SG&A expense and R&D.
To stem cash burn, Petrobras slashed its five-year capital spending by 40% and has been canceling drilling contracts with suppliers such as Sete Brasil and Vantage Drilling (NYSEMKT:VTG). These are prudent steps given that oil prices are off 60% from their Q2 2014 peak and the global economy is showing signs of slowing. If sub-$60 oil prices are the new normal, stagnant revenue and earnings growth may be in the cards regardless of the company's cost-cutting measures.
$90B Dollar-Denominated Debt
Zero interest rates in the U.S. have prompted investors to look to emerging markets for higher yields. Investors have provided dollar-denominated debt to companies like Petrobras at higher rates than U.S. treasuries, but lower than what companies in emerging markets could get locally. Borrowing in dollars and paying in Brazilian real had previously not been a problem.
However, the real has depreciated over 38% against the dollar over the past year, making un-hedged dollar-denominated debt prohibitively expensive.
In Q2, Petrobras had $134 billion in debt load, which equated to about 4.9x run-rate EBITDA - junk levels. About 70% (over $90 billion) of that was dollar-denominated, which means that it will probably take more real for Petrobras to repay its debt going forward.
If China continues to devalue the yuan or if the U.S. raises interest rates, it could spur more capital flight out of Brazil and pressure the real further. Either way, I believe Petrobras' dollar-denominated debt will appreciate to levels that could potentially become too burdensome for the company to repay.
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are we there yet?
If you are all preped and ready, we're there.
Who in their right minds thought it was a good idea to lend money to a broke Brazilian oil company for a term of 100 YEARS?!
Oh, nevermind,... I answered my own question...
[PS: Who bought BZQ a few days ago? Answer: ME!!!]
Gosh. I remember those great big humongoliod monster multiple tranche dollar denominated deal(s) they brought when PetroBrasire was gonna deep (As in 20 miles+ where no dinosaur has gone before, Spock!) drill infinite amounts of (non-aerobic, sarc) oil and beings one of the Great Success Stories of the Entire Globe In All of History, it was a Great Fucking Deal, Mr President.
See, selling that kinda crap gets ya' cancer.
Karma, motherfuckers
Someone is getting corn holed.
And I'm pretty sure the Man with the Goldman BalSach is the one swingin' the wood.
I loved this so much when somebody else here presented it previously...
https://www.youtube.com/watch?v=fTIlPxAo8Bo
the fed will buy them. oh wait a tick, that only works for JPM. bonus time for the squid btchez.
There is no crisis at Perobras at all. Brazil has 250 billion in treasuries to fund this
Wow - just thinking 'what if' scenario where Glencore and Petrobas both shit the bed in close proximity. That would start a chain reaction in CDS and derivatives and there would be hell to pay.
Getta away from me you god damn black swan..go away god damn it. Shu!!
Agreed up to the point about CDSs paying off. They will never pay off. The bankers who determine what a "credit event" is will never declare such an event. The "insurance" offered by a CDS is only as good as the claims-paying ability of the institution that stands behind it. Which is almost nothing.
True, Douche Bank came up short trying to honor credit swaps during the '08 pullback.
I'd forgotten about that!
So I wonder what the relationship between VW and DB is these days?
And of all the folks, the bulwark of German Christendom (A Protestant Pope Joke from Mr Luther) DB is the single largest repository of Swaps, CD's etc., etc., etc., under the sun, somebody wrote the other day.
Ah, don't worry, we'll net it out and cover to with a nice smooth coat of Bondo. Fuckin'A!
Will have to print a lot of cans of bondo to cover that gaping hellmouth. We're getting shit on us even just mentioning it.
+100
Getta away from me you god damn black swan..go away god damn it.
For channelling The Jerky Boys:
https://www.youtube.com/watch?v=znEXmRMuEQ0
Is my pretty black swan bothering you? Just feed it some peasant meat and he'll leave you alone.
SO Petrobras and Glencore go down the shute together; maybe with VW if the diesel goes pop.
Petrobras will be nationalized by Dilma. No big deal, oil companies are like your own city shit dump, it stays in the municipal family like a heirloom.
Not so sure Glencore or VW will survive as they be private operating in far off lands ; but they'll be bought out by another Oligarch of "dog eat dog, world on a leash land" .
Who has the big dog?
Central banks pay the debts of corporations so what's the problem.
Denominated in dollars is the problem. Brazil's CB can't print them.
Brazil the 5th most treasuries in the world. They can liquidate 250 billion to cover it. Maybe they will be too stupid for that
No need to worry.
Corzine opened a fund to soak up all of these bonds. He's such a genius he knows he will generate incredible gains on these. He's got a thing going with the PDs to skim off retail bank accounts to make the coupon payments while he works his magic.
Does Franklin Templeton own these with their Porky Ukraine bonds?
in a few months exxon can buy the country for cents on the dollar and everybody wins
in a few months exxon can buy the country for cents on the dollar and everybody wins
Unless this happens! ...
exxon has more acreage in Russia than many other places, why not Brazil next?
edit - i dont click links/ reply based on url of your link
It's frightening enough to watch a small machine shake itself apart. Try extrapolating to the world's economy.
They can simply borrow agains their debt, right? Since the Fed considers debt as an asset, they shouldbe in good shape to borrow at least $60 Billion against that $90 Billion in debt.
Boooyaaaah!
Who could of knowed that borrowing USDs could be so dangerous.
Didn't Soros get the US taxpayers to loan billions to PetroBras? My guess is was more like a gift.
So, don't pay! Where is the harm in that? The banks created the debt out of thin air and they can make it go away the same way. It is a "nothing". The banks cannot own something real from the creation of something fictional. It makes not sense.
Didn't i hear something similar about Greece?
"The UK has provided significant financial support to numerous Petrobras deals, but most significant is a $52m (£35m) loan underwritten by the UK taxpayer in 2005 which helped finance construction of one of the world’s largest oil platforms."
...
"Hundreds of millions of dollars worth of bribes were allegedly skimmed from deliberately inflated Petrobras contracts."
http://www.theguardian.com/environment/2015/mar/20/petrobras-scandal-pro...
ADEUS!
Dollar-denominated debt is going to pose a Real Slice of H*ll for countries with sinking currencies. Hard to believe that we've plunged to the point that PetroBras is at real default risk.
So ... PetroBras gets bought by who????
when there is blood in the water, sharks are sure to follow ...
Good job! Bonuses all around for all.
100 year bonds that didn't last a year...
And it came to pass, it was almost as if a thousand crony-socialists and a million parasitic leeches all cried out at once!
No, I'm not talking about the denizens of Wall Street or Albany NY ;-)
How much money did the US sink into that fucker? It was one of Obamas first big hand outs
If I recall, Obama sank TWO BILLION Benny Bucks into it. Unfortunately Warren couldn't get the mammoth railroad trestle built in time.
Clearly this calls for 20 trillion in public money for Warren's "infrastructure improvements"!!!
I'm mean, Jobs Jobs Jobs! right?...lol.
we gave soros money for him buying into this P.O.S I believe.
1 billion if I recall. Where's our return - same as all the fucking solar companies we invested in.
Fuck you Obama.
Wasn't Petrobas the owner of that repossessed oil lease area in Argentina a while back?
I think that was Spain's Repsol. Brazilians know the Argies too well to invest in fixed assets there.
Popular past time in Brazil is telling Argentinian jokes.
Example:
What did the Argentinian say when lightening strikes?
Argentinian: That's not lightening - that's God taking my picture!
Bwahahaha... i just wait who's the idiots that hold onto derivatives collateralized by this HY bonds. Bwahahahaha..
Also, not just petrobras. This also in trouble.
http://wolfstreet.com/2015/09/21/australias-mega-lng-projects-are-in-ser...
That is a 100 B AUS$ projects while the LNG price is crashing. Let see who holds the HY bonds also for this one.
And also American "ponzi schemes" shale oil's.
Bwahahahaha...
A couple years back the Polish currency nosedived,but alot of the recently made residential mortgages from UBS were made repayable in Swiss Francs (CHF).The Polish homebuyers found themselves screwed A) from their Gov't overnight devaluation of their currency and B) the Swiss mandating repayment in a hard currency.
During the Weimar hyper-inflation people were able to repay their mortgages overnight.Nowadays they have so much fine print I doubt this will ever happen again.
As for Australia,read about how Alan Bond was able to throw tantrums and get free money from the Gov't of Western Australia...
Lech Walesa says .... the Muslim "refugees" .... look better fed, better dressed and richer .... than many Poles .... who live in small flats .... and subsist on meager pensions ?
Wimpy: "Give me a hamburger today .... and I will gladly pay you THE next Tuesday .... one hundred years from now ?"