EM LATAM CREDIT: Braskem: Tanure Bid, Alagoas Liability - Neutral
(BRASKM; Ba3/BBneg/BB+)
"Braskem bid by Nelson Tanure hinges on resolution of Alagoas liability" - Bbg
A common stumbling block to someone buying Braskem has arisen once again, and with good reason as Valor reported according to Bloomberg that the Alagoas State Public Defenders Office has filed a new public interest civil action seeking revised compensation terms.
Brazilian businessman Tanure has expressed interest in buying up a significant stake in the Brazil based chemical company but wants a comprehensive and final settlement of the Alagoas liability as part of the deal which we see as a prolonged process for all interested parties to agree on final and irrevocable numbers.
To put this all in context, in reaction to the Tanure bid announced last month bond prices have fallen in past weeks on uncertainty in general and concerns that the acquisition may involve a negotiated bond restructuring as the company has underperformed for years with disappointing EBITDA generation and allowed leverage to reach 7.9x as of 1Q 2025.
Tanure announced the hiring of Rothschild as an advisor to negotiate with all the involved parties and we are awaiting more details.
We posted back in January our negative view when Braskem yet again provisioned for its Alagoas environmental liability more than seven years after it occurred and long after it was thought the issue had been resolved.
A number of suitors for Braskem have come and gone over the years with all of them passing as they reportedly couldn't get past the environmental liability.
BRASKM 34s were last quoted T+733bp, 289bp wider QTD and 323bp wider YTD.
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FED: NY Fed To Run Regular Morning Standing Repo Ops
The NY Fed announces that (as has been the case for the last couple of month- / quarter- ends) that it will run a daily morning overnight Standing Repo Facility (SRF) operation (0815-0830ET) starting Jun 26, in addition to the usual afternoon SRF ops (1330-1345ET). Announcement here.
- What is unusual is that there is now no end-date to these operations - this announcement confirms what NY Fed SOMA manager Perli said last week, along with the reasoning:
- "The SRF is an important facility, but it is not frictionless. Our SRF counterparties have mentioned some features of the SRF that discourage its usage even if market rates exceed its minimum bid rate. One such friction is the fact that SRF auctions are carried out and settled in the afternoon, while most repo market activity takes place in the morning. Afternoon auctions are important because they can provide cash later in the day should a need for liquidity arise when most repo market activity has already taken place. Still, that does not mean additional earlier SRF auctions cannot be helpful....in the not-too-distant future the Desk will start implementing daily morning SRF operations that will also be settled in the morning. This will be an important step in enhancing the efficacy of the facility, and, at the margin, it can contribute to a smaller SOMA portfolio than would otherwise have been the case."
- Daily aggregate size for the combined operations is $500B.
- On the margins this should be helpful for market functioning at times of distress, but given such limited takeup of the morning SRF in the last couple of quarter-end windows, and the fact that the NY Fed telegraphed this decision previously, there shouldn't be much of a market reaction.
MNI: Fed should take cautious approach - may minutes
- MNI: FED SHOULD TAKE CAUTIOUS APPROACH - MAY MINUTES
- FED: WELL POSITIONED TO WAIT FOR MORE CLARITY ON OUTLOOK
- FED: TARIFFS BOOST RISKS TO INFLATION, EMPLOYMENT
EURGBP TECHS: Fresh Short-Term Cycle Low
- RES 4: 0.8557 High Apr 28
- RES 3: 0.8541 High May 2
- RES 2: 0.8493 High May 9
- RES 1: 0.8447 50-day EMA and a key near-term resistance
- PRICE: 0.8387 @ 16:19 BST May 28
- SUP 1: 0.8373 Low May 27
- SUP 2: 0.8359 1.236 proj of the Apr 11 - 16 - 21 price swing
- SUP 3: 0.8316 Low Mar 28 and a key support
- SUP 4: 0.8277 1.618 proj of the Apr 11 - 16 - 21 price swing
A bear cycle in EURGBP remains in play and a fresh cycle low yesterday reinforces this theme. Resistance to watch is at the 50-day EMA at 0.8447. A clear break of this average is required to highlight a stronger reversal and shift attention to resistance at 0.8541, the May 2 high. On the downside, a resumption of the downtrend would pave the way for a move towards 0.8359, a Fibonacci projection.
