EM LATAM CREDIT: Braskem SA (BRASKM; Ba2neg/BB+neg/BB+neg)
Braskem SA (BRASKM; Ba2neg/BB+neg/BB+neg)
"Braskem Falls After Raising Provisions for Alagoas Disaster" – BBG
Negative for Spreads
• Brazil chemical company Braskem bonds already trade at a higher yield than the rating might suggest, but we fear they could widen out further. The company continues to provision after the market and rating agencies have expected the provisioning to finally end after seven years since the disaster began and meanwhile leverage continues to remain elevated way above what the agencies have signaled as acceptable. Braskem issued 10 year bonds back in October 2024 at 8%, T+393 and have ranged from T+353 to T+428 since then, currently T+392 or 8.43% yield. Braskm 2031 bonds are trading at 8.08%.
• Brazil steel company Companhia Siderurgica Nacional S.A. (CSNABZ;Ba2neg/BB-BB) has 2032 bonds at 9.4% and while Braskm bonds may not reach that kind of level, we think they may gravitate in that direction on potential rating agency actions or further news disappointments. For Braskem’s current rating level we see Brazil government owned energy company Petrobras (Petbra; Ba1pos/BB/BB) at T+233bps as well as the recent new issue from lower rated Brazil steel company Usiminas (USIM; Ba2/BB/BB) with a 7NC3 trading at 7.62% and Brazil conglomerate Cosan (CSANBZ; Ba2neg/-/BB) with 2031 bonds trading at 7%.
• Braskem reported sales and operating margins improving since last year which resulted in an improvement of 84% for the nine months of 2024 y/y while according to the company adjusted net debt/recurring EBITDA fell from 12.2x to 5.8x which is still way too high relative to the 4.5x moving towards 3.5x that Fitch for example has been expecting. Liquidity is strong with the company citing, “The liquidity level of US$2.4 billion, in September 2024, guarantees the coverage of debt maturities in the next 52 months”.
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US TSYS: Tsy Curves Look To Finish 2024 at June'22 Highs
- Treasuries look to finish the last trading session of 2024 lower after reversing Tuesday morning support. Markets closed Wednesday for New Years day, resume full trade Thursday.
- The Mar'25 10Y contract trades 108-25.5 (-5.5) late in the day, 10Y yield near session high of 4.5871%. Curves bounced off flatter levels, 2s10s climbing to 34.344 -- the highest level since June 2022.
- Short end support, in turn, helped projected rate cuts into early 2025 gain momentum vs. late Monday levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -14.6bp (-13.6bp), May'25 -20.6bp (-19.5bp), Jun'25 -29.8bp (-28.8bp).
- No substantive reaction to this morning's housing and regional Dallas Fed services activity data. Looking ahead to Thursday data (prior, est): Initial Jobless (219k, 221k) and Continuing Claims (1.910M, 1.890M) at 0830ET; S&P Global US Manufacturing PMI (48.3, 48.3) at 0945ET; Construction Spending MoM (0.4%, 0.3%) at 1000ET.
- Treasury supply: $85B 4- & $80B 8W bill auctions at 1130ET, $64B 17W bill auction at 1300ET.
COMMODITIES: WTI Futures, Gold Holding Higher
WTI futures are trading higher today as the contract extends recent gains. A stronger reversal to the upside would refocus attention on key short-term resistance at $76.41, the Oct 8 high. Initial firm resistance is unchanged at $71.97. A bear threat in Gold remains present. The yellow metal traded sharply lower on Dec 18 and the move undermines a recent bull theme. A resumption of weakness would open key support at $2536.9, the Nov 14 low.
- WTI Crude up $0.9 or +1.27% at $71.88
- Natural Gas down $0.32 or -8.13% at $3.618
- Gold spot up $19.24 or +0.74% at $2625.86
- Copper down $6.95 or -1.7% at $402.3
- Silver down $0.1 or -0.34% at $28.8383
- Platinum up $3.96 or +0.44% at $908.02
US STOCKS: Late Equity Roundup: Tech & Interactive Media Sectors Underperforming
- Stocks are trading near session lows after reversing early session gains. Though off this year's record highs (SPX Eminis 6178.75, DJIA 45,073.63, Nasdaq 20,204.58) major averages will finish the year with double digit gains: SPX Eminis +19.5%, DJIA +13.1%, while the Nasdaq gained 29.9%!
- Currently, the DJIA trades down 92.19 points (-0.22%) at 42474.46, S&P E-Minis down 28 points (-0.47%) at 5929.75, Nasdaq down 147 points (-0.8%) at 19337.13.
- Information Technology and Communication Services shares underperformed continued to underperform late Tuesday, shares of software and semiconductor makers weighing on the tech sector: Nvidia -1.61%, Advanced Micro Devices -1.36%, Crowdstrike Holdings -1.28%.
- Interactive media and entertainment shares weighed on the Communication Services sector: Alphabet -0.9%, Live Nation -0.76%, Netflix -0.60%, Meta -0.41%.
- On the positive side, Energy and Materials sectors outperformed in the second half, oil & gas stocks buoyed the Energy sector as crude prices continued to rise (WTI +1.0 at 71.99): APA Corp +3.59%, Marathon Petroleum +2.46%, Occidental Petroleum +2.15%.
- Meanwhile, shares of chemical & fertilizer makers supported the Materials sector: Mosaic +2.44%, Celanese +1.42%, Dow +1.37%.
- Looking ahead, the next round of quarterly earnings kicks off mid-January with Blackrock, Bank of NY Melon, Wells Fargo, JP Morgan, Goldman Sachs, Citigroup, US Bancorp, M&T Bank and PNC all reporting between January 13-16.
