Coronavirus cases have been rising sharply in many Latin American countries / Photo: Shutterstock.com

Capital markets work has fallen dramatically in Latin America and the Caribbean as a result of the coronavirus, with market volatility and shifting priorities by debt and equity issuers putting many transactions on ice.

Data from deal tracker Dealogic shows that equity deals are largely off the table, while loan volume, corporate debt issuance and mergers and acquisitions have also dropped. But corporate lawyers with relationship-based practices in the region say they're busy advising clients on financing, contracts and the roll-out of new laws and regulations that attempt to address the health emergency.

Some firms have been able to compensate for the capital markets lull by working on the large offerings governments are making in anticipation of lower tax collections and the inevitable economic pain from COVID-19. Dealogic logged eight debt capital market deals from the region in April—mostly by Latin American sovereigns and state-owned companies—that raised $16.2 billion, roughly the same amount raised via 38 offerings in April 2019.

"That trend of sovereigns coming before the corporates is usually what you'll see in times of crisis," says Evan Koster, a partner in Hogan Lovells' capital markets group in New York. "It's still too early for corporates to predict what the new normal will be like."

Countries such as Chile and Guatemala have specifically mentioned the fight against COVID-19 as a reason to come to market. Corporates, though, lack audited quarterly financial results that accurately reflect the drastic disruptions to supply chains and sales that began for most Latin American countries toward the end of March.

Cleary Gottlieb Steen & Hamilton was at the top of Dealogic's debt capital markets league tables for Latin America and the Caribbean as of the end of April, having advised nine issuers this year on $19.2 billion worth of offerings. Sullivan & Cromwell topped advisory work to bookrunners during the same period, with $11.5 billion raised via three debt offerings.

"With unprecedented disruptions to the global economy, both sovereigns and state-owned companies have been accessing the debt capital markets at historic levels to improve their liquidity," said David Lopez, a New York-based capital markets partner with Cleary Gottlieb.

Behind the scenes, lawyers have also been assisting clients with loans, liability management, disclosures and alternatives for payment disruptions caused by COVID-19. Companies hurried at the start of the crisis to line up bank credit, just in case. Financing has become increasingly tough, though, with banks placing conditions and in some cases even reneging on agreements. Now restructuring is top-of-mind.

LATAM Airlines announced a voluntary reorganization and restructuring of debt under Chapter 11 protection in the U.S. on Tuesday, advised by Cleary Gottlieb. The carrier seeks to resize its operations to adjust to a new environment; LATAM reported $8.9 billion in net debt on its balance sheet at the end of the fourth quarter.

The Chile-headquartered airline group said it chose to restructure in the U.S. because that's where most of its debt sits, though just four of its seven affiliates in Latin America will join. LATAM affiliates in Argentina, Brazil and Paraguay are not included in the Chapter 11 filing.

Gabriel Gomez-Giglio, head of Baker McKenzie's banking and finance practice for Latin America, notes that multinationals face a patchwork of accommodations geared toward easing reorganizations in the age of COVID-19. Peru, for instance, has passed legislation allowing companies to conduct reorganizations online until the end of the year.

"Countries are taking different steps to tackle the impact of the crisis in local business, therefore when it comes to restructuring in Latin America, one size does not necessarily fit all," said Gomez-Giglio, who is based in Buenos Aires.

Brazil work adapts to new normal

Latin America's biggest economy, Brazil, entered 2020 with expectations of significant capital markets activity, including more than two dozen initial public offerings. Since March, though, at least six potential equity issuers in Brazil have postponed IPOs. Finance has gone more under the radar, via direct agreements with the banks.

Gabriella Maranesi Najjar, a partner in the corporate and finance practice at Vella Pugliese Buosi e Guidoni Advogados in São Paulo, says clients have turned during the crisis to private loans and financing that is faster and cheaper than debt issuance via capital markets. Those private transactions still demand some lawyer work.

"We have faced a reduction in transactional work, but it has been less dramatic than we were expecting when the lockdown began," said Najjar, adding that COVID-19-related consulting work has kept her firm "quite busy."

Vella Pugliese employs 120 lawyers in Brazil and has a strategic alliance with Dentons, which has more than 10,000 lawyers in its worldwide network.

Carlos Barbosa Mello, managing partner at Lefosse Advogados, a firm with 250 lawyers in Brazil, expects law firms that focus on repetitive, commodity-like transactions to struggle in a crisis environment that demands more tailored solutions and a lot of creativity.

Lefosse has brainstormed during the pandemic with airlines and logistics clients that have had to redesign routes to keep critical goods flowing, and with hospitals needing to upgrade facilities. Retailers have sought to renegotiate leases to stay solvent. Consolidation appears around the corner for many sectors, which should bring more M&A work.

"Finance right now is really, really hard," says Mello. "The banks don't want to say no to large clients, but then the agreements are much tougher."

At the moment, Mello says banks in Brazil are holding debt on their balance sheets that might normally be packaged as capital market transactions because offices where indentures must be registered to issue local bonds are closed to prevent the spread of COVID-19.

Some equity deals will squeak through in the meantime from companies that are willing to sell shares at distressed levels. Already in May, Lefosse helped bring parking solutions firm Estapar to the B3 stock exchange in São Paulo so that the company could raise capital to pay for a street parking concession.