Argentina's OCA to Post Bond

Organizacion Coordinadora Argentina - a postal carrier owned by The Exxel Group, one of Latin America's premier leveraged buyout firms - is preparing a $315 million bond sale, market sources said. BT Alex. Brown is the lead manager of the deal, which will be OCA's first issue, and could prove a benchmark for Latin American corporates

OCA will have to wait for current market volatility to diminish, however, before pricing the deal, an analyst covering Latin American corporates said. "People are still talking about Argentina [and devaluation] and the market's still kind of glutted." OCA and BT Alex. Brown hope to launch the sale within the next three months, a source close to the deal said.

As a B+ rated company, OCA will be setting a benchmark for lower-rated corporates, should it successfully close the transaction, said Sergio Martin, director of corporate ratings at Standard and Poor's in Buenos Aires. Since the Russian crisis struck the emerging markets last year, only BB+ and BBB- Latin American corporate credits have been able to access the markets, and the majority of those have had significant foreign ownership. "It's going to be a tough sell," Martin added. "It will depend on just how high a rate the issuer is willing to pay.

The eight-year bond is likely to have a plain-vanilla structure and will hold senior-note status, the source close to the deal said. Deutsche Bank, which merged with BT Alex. Brown last year, is likely to participate in the sale, the source added.

Proceeds from the bond issue will be applied toward rolling over outstanding debt, most of which was transferred to OCA during its $450 million purchase by Exxel in December 1997. The roughly $350 million in bridge notes owed to the firm's previous owner, Hector Collela, have significantly weakened OCA's financial standing. Subsequent to the buyout, OCA's debt-to-capitalization ratio increased to 79.5% up from 39.5%.

Although Exxel did provide its new acquisition with a capital infusion of $45 million in January of this year, thereby reducing the debt-to-capitalization ratio to 71.2%, OCA's debt burden remains its Achilles' heel, Martin said. The company's aggressive financial policy resulting from the buyout could place it at risk in a market that is likely to become more competitive due to industry consolidation in the future.

From an operational standpoint, however, OCA is well positioned in a deregulated, high-growth market. "It's the second largest postal carrier in the country with a 25% market share, and we expect the financial situation to improve over the next four years due to strong cash generation and the company's low investment requirements," a Buenos Aires-based corporate analyst said.

Formerly associated with Alfredo Yabran - an Argentine businessman reputed to have ties to both organized crime elements and President Carlos Menem - OCA was perceived as a potentially risky investment, and after Yabran's mysterious suicide in the spring of 1997, the company languished on the selling block for eight months until Exxel took interest.

Known for the aggressive approach of its founder and CEO Juan Navarro, Exxel has quickly made a name for itself as one of the most active equity investors in Argentina. Since the company launched in 1993 with a $50 million fund, investments have surged to roughly $1.4 billion while its investor base has grown to include well-known institutional players such as Aetna, the Ford Foundation and BT Alex. Brown.

Under its new ownership, OCA has looked to maintain its current technological advantage over its main competitor, Correo Argentina by teaming up with German postal company, Deutsche Post AG. The two companies signed a cooperative agreement with OCA in September 1998, aimed at fostering joint ventures between the two firms to develop postal service firms in Latin America. Since signing the agreement, OCA has joined a consortium led by Deutsche Post to develop Brazil's postal service. - Matthieu Wirz