It's the end of an era in Brazil. On October 17, the sovereign will mop up the last 20% of its outstanding C bonds, exercising its option to call them at par. The move will mean that Brazil's status as a Brady bond debtor will officially be over. Brady bonds – restructured sovereign loans backed by US treasury bills – were created to help overcome the Latin American debt crisis of the 1980s. Many sovereigns are now keen to retire this debt.
Brazil began the process in July when it pulled off one of the largest and cleanest pieces of liability management the world of sovereign finance has ever seen. In a $4.3 billion deal, the country retired some 80% of its outstanding benchmark C bonds, replacing them overnight with a brand-new benchmark: the A bond.
Most of the cost of the October exercise, some $1.2 billion, will be covered by the proceeds of a $1 billion 20-year bond issue, which came to market via Morgan Stanley and Bear Stearns in September.
Brazil is also busy issuing other types of debt instruments. On September 19, the sovereign issued a new global bond denominated in reals.