The Long and Short
Opportunities in some hybrid and perpetual structures
This material is a Marketing Communication and does not constitute Independent Investment Research.
Latin American corporate hybrids are likely to underperform senior bonds in the near term as Treasury volatility, weaker fund flows and risk aversion keep investors away from subordinated and longer-duration credit. That should widen already attractive hybrid-to-senior spreads and create better entry points once markets stabilize. Cox Asset México, Grupo Nutresa and SQM all have hybrid debt trading wide to seniors.
Cox Asset México stands out, with its 8.75% perpetual yielding more than 9% to the 2031 call and offering about 150 basis points over its 2032 senior bonds, the widest pickup in the group. Grupo Nutresa offers a higher-beta alternative at roughly 8.95% to call, while SQM provides the strongest investment-grade option but with a more modest premium over senior debt. Near-term volatility should create opportunities across the sector, with Cox offering the strongest combination of defensive cash flows and relative-value spread. Some particulars:
- Cox Asset México: Cox Mexico is the newest entrant to the LatAm hybrid market and is also a relatively new issuer in the international hard-currency market. Its recent $800 million 8.75% perpetual strengthened near-term liquidity by refinancing an amortizing term loan. The transaction also improved the structural position of the existing senior bonds since the repaid term loan had shared collateral with those securities. However, the term loan contained restrictions on dividend distributions through 2030, and its repayment gives Cox’s owners greater flexibility to upstream dividends earlier than previously contemplated. Even so, the B2/BB-rated hybrid offers a yield above 9% to its September 2031 call date, representing roughly 150 basis points of pickup over the 2032 senior bonds — the widest differential in the group.
- Grupo Nutresa: Nutresa’s senior debt is split-rated Baa3/BB+, while its subordinated bonds carry an average rating of double-B — broadly comparable with Cemex’s hybrids. The Nutresa hybrid, however, offers a substantially higher yield of about 8.95% to its 2031 call date. The additional compensation reflects Nutresa’s higher net leverage and a more aggressive expansion strategy, including the potential re-entry into Venezuela. These factors should keep the hybrid more volatile than the higher-quality securities in the group.
- Cemex and SQM: The Cemex perpetuals and SQM’s recent hybrid offer the smallest OAS pickup over senior debt among the bonds reviewed, largely reflecting the strong investment-grade profiles of both issuers’ senior debt. Cemex’s hybrids offer only about 49 basis points of additional OAS over its 2031 senior bonds. SQM’s hybrid — the only investment-grade-rated hybrid in the group — offers about 59 basis points over its outstanding 2033 senior bonds. Adjusting for the curve to SQM’s April 2031 call date increases the differential somewhat. With a 6.7% yield to call, the SQM hybrid could become attractive for investment-grade investors if the current market weakness creates additional spread.
- CMPC: CMPC’s hybrid offers an approximately 8% yield to its September 2032 call date, which appears attractive for a subordinated security rated around BB/Ba1/BB. The fundamental outlook, however, limits the near-term upside. We expect leverage to increase substantially if CMPC receives the necessary permits to proceed with its planned Brazilian expansion. That prospect should constrain price appreciation across both the senior and subordinated curves until investors gain greater visibility on the project’s financing and actual impact on balance sheet metrics.
These hybrids should remain under pressure in the near term as weakness in senior corporate credit filters through the capital structure. That should push hybrid-to-senior spread differentials wider and create better entry points. As markets stabilize, we see the most interesting opportunities at opposite ends of the risk spectrum. Cox Mexico provides exposure to the more defensive utility sector while offering the largest senior-to-hybrid spread pickup in the group. Grupo Nutresa offers a higher-beta consumer credit with substantially more yield and greater potential upside if leverage and expansion risks moderate. SQM remains the higher-quality alternative for investment-grade investors, particularly if broader market weakness pushes its hybrid spread further above the senior curve.
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