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Goldman’s Tequila Bond Bet Tests Recession-Proof Label

(Bloomberg) -- Investors betting on the resilience of bonds from the world’s top tequila maker may get some vindication after a big decline last month.

Dollar-denominated debt from Mexico City-based Becle SAB, the maker of Jose Cuervo, is trading near a one-year low after emerging-market assets tumbled in March amid the sell-off sparked by the pandemic. The nation’s coronavirus caseload exceeds 2,700, among them a positive test from Becle Chief Executive Officer Juan Domingo Beckmann.

But some traders say the company’s notes now look like a bargain. For one, unlike some breweries, the Jose Cuervo distillery in the town of Tequila is carrying on with production after the state government deemed it essential. Moreover, sales of booze have soared while most Americans remain on lockdown. Longer term, demand for alcohol holds up better than other products during a recession, Fitch Ratings wrote last week, keeping a stable outlook for Becle at the third-lowest investment grade.

“The Cuervo bonds should do well,” said Ray Zucaro, the chief investment officer at RVX Asset Management in Miami. “I have personally drank every day of quarantine to help their top line!”

That’s encouraging news for investors like Goldman Sachs Group Inc., which was the largest reported holder of the notes as of Feb. 28, according to data compiled by Bloomberg. Goldman declined to comment on the debt. The $500 million of bonds due in 2025 rallied by the most in almost three weeks Wednesday to 96 cents on the dollar.

The Cuervo family’s road to a multi-billion dollar fortune began in the late 1700s, when Jose Maria Guadalupe de Cuervo won the first tequila-making license from King Carlos IV of Spain. The agave-based spirit became a staple for soldiers in the Mexican-American War, while the introduction of railroads helped establish a tequila boom at the turn of the 20th century. Becle took the company public in 2017, and it’s now worth about $4.5 billion. Besides Jose Cuervo, it also makes Bushmills whiskey and Hangar 1 vodka.

Becle said last month that Beckmann was in good condition as he coped with the virus at home. The company hasn’t released any updates and didn’t respond to a request for comment.

The pandemic is also providing an unexpected benefit to Becle. Mexico’s peso has plunged almost 20% since the end of February, yet since the company gets more than three-quarters of its sales from abroad, that should boost revenue in peso terms while reducing its local costs, according to Fitch.

(Updates with bond move in fifth paragraph.)

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