Magazine article American Banker

Option-Laden Agreement Concludes Brazil Debt Talks

Magazine article American Banker

Option-Laden Agreement Concludes Brazil Debt Talks

Article excerpt

Brazil and its foreign creditor banks agreed early Thursday on a reduction of that country's medium- and long-term borrowings.

The agreement, one of the most complex to date, covers about $44 billion in borrowings, up from previous estimates by bankers of $41 billion.

6 Options Offered

Under the agreement, banks will be able to pick one or more of six options:

* 30-year Brazilian government bonds at a 35% discount, bearing an interest rate of the London interbank offered rate plus 0.813%. The bond's principal will be collateralized by zero-coupon U.S. Treasury bonds; 12 months' worth of interest payments will also be collateralized by short-term securities.

* 30-year Brazilian bonds at face value, bearing an annual interest rate rising from 4% to 6% over seven years. U.S. Treasuries will be used as collateral for the bonds' principal. One year's worth of interest will be collateralized by other securities.

* 15-year front-loaded interest-reduction bonds, with an interest rate rising from 4% over the first two years to Libor plus 0.813% after seven years. These bonds will have a nine-year grace period, with interest collateralized annually for the first six years.

* New money in the form of 15-year loans with a seven-year grace period at Libor plus 0.875%

* Converting outstanding loans into new 20-year loans with a 10-year grace period and interest rising from 4% a year to Libor plus 0.813% after six years.

* So-called capitalization bonds that add a portion of the interest due to principal for the first six years, with interest rising from 4% initially to 8% after six years. …

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