Fitch Affirms BTG Pactual Group's Ratings; Outlook Revised to Positive

  Fitch Affirms BTG Pactual Group's Ratings; Outlook Revised to Positive

Business Wire

SAO PAULO & RIO DE JANEIRO -- January 27, 2014

Fitch Ratings has affirmed the ratings of Banco BTG Pactual S.A. (BTG Pactual)
and its related parties: BTG Investments LP (BTGI) Banco Panamericano S.A.
(PAN), Brazilian Finance & Real Estate (BFRE), Brazilian Mortgages Cia
Hipotecaria (BM) and Brazilian Securities Cia de Securitizacao (BS) and of its
holding company BTG Pactual Holding S.A. (BTGH). The Rating Outlook has been
revised to Positive from Stable. A full list of the actions taken is detailed
at the end of this release.

RATING ACTION AND RATIONALE

The revision of the Rating Outlook to Positive from Stable reflects Fitch's
expectation that BTG Pactual will continue to benefit from the increasing
diversification of its business franchise carried out over the last three
years, expand its leadership in the Latin American region and preserve
adequate leverage metrics and profitability. Fitch acknowledges the bank's
ability to perform well with sound profitability along the economic cycles;
which compares well with other similarly rated entities with special focus on
treasury and investment banking activities and a growing and steady asset
management business. Management experience has fostered fast growth in the
last several years, and risk controls are considered strong. Liquidity
policies and metrics have improved as well as the maintenance of its leverage
levels within acceptable levels.

The bank's strong repo position and its large investment portfolio are largely
composed of liquid assets, with a small portion of securities being comprised
of non-investment grade sovereign or private debt. The bank is also one the
largest Central Bank dealers, providing liquidity to market players through
overnight and short term repo transactions backed by Brazilian Government
debt.

Over the last years, with a stronger capital base due to hefty capital
injections and the 2012 IPO; BTG Pactual has expanded its activities into
consumer financing (through PAN), financial services to the real estate sector
(including real estate financing and securitizations through BFRE, BM and BS),
into the brokerage business and investment banking in several countries of
Latin America (Chile, Colombia and Peru), rapidly consolidating its position
as a market leader in the region. All these acquisitions have been fully
funded with the aforementioned capital injections and have increased income
diversification, even though, the bulk of the bank's profit still stems from
the Brazilian operation. The creation of a commodities platform may be another
move into further diversification and bodes well to future business expansion.

Measured on a consolidated basis, BTG Pactual's capital and leverage ratios
tangible equity to tangible assets has averaged 7% since 2010; while gross
leverage measured as total assets over FCC was 15.8x as of September 2013 (net
leverage of 8.1x). These ratios are enhanced by BTG's long history of stable
and strong profitability; but certainly demands a conservative approach by the
bank and may be reduced by concentrating all of its Principal Investment
business under BTG I, a sister company. Debt service and interest expenses
coverage ratios (4.0x and 4.6x, respectively) stands slightly weaker than its
peer group. Regulatory capital ratios are ample and well above the minimum
required, albeit, are benefited by the low risk weight of its large portfolio
of government securities.

The Issuer Default Ratings (IDRs) and National Scale ratings of its related
parties: BTGI PAN, BFRE, BM and BS are driven by the expected support from
BTG. Under Fitch Rating criteria, these companies are considered
'strategically important' to the parent, and its ratings are notched once from
BTG's IDR.

BTGH is a pure holding company and its long- and short-term IDR's and National
Scale Ratings are equalized to those of BTG thanks to its moderate leverage
levels and favorable regulatory framework towards financial groups in Brazil.

PAN's Viability Rating (VR) remains limited by its still weak operating
performance, even though some improvements in asset quality have been
observed. Counterbalancing these aspects, the bank enjoys a stable funding
base, explained by committed funding and liquidity lines from its other
controlling shareholder: Caixa Economica Federal (Caixa, Foreign Currency LT
IDR of 'BBB'/Outlook Stable) and an improved business model, derived from the
experience of the new management appointed by BTG since 2011. The unfavorable
market scenario has not allowed the bank to grow as fast as it would expect
and this has delayed some profitability improvements. Some cost controls
measures taken recently should benefit the bank's results in the coming
periods as well.

RATING SENSITIVITY/KEY RATING DRIVERS - VRs and IDRs

BTG Pactual VR and IDRs may be upgraded if the bank is able to maintain its
consolidated leverage within acceptable range (net adjusted leverage below
8.0x); maintain its operating ROAA above 2%, reflecting continued revenue
growth in line with the expansion of its asset base. In turn, sudden
deterioration of the operating environment, leverage, profitability or a
troublesome performance of one or some of its subsidiaries may negatively
affect BTG Pactual's ratings.

PAN's VR may be upgraded after a sustained improvement of its operational
results (operating ROAA above 0.5%), that helps to enhance its Fitch Core
Capital Ratio to more than 7% and its funding profile remains aligned with the
tenor and characteristics of its assets. A negative rating action may be
triggered by a longer than expected breakeven point of its operations and a
backdrop of its already low capital ratios.

RATING SENSITIVITY/KEY RATING DRIVERS - Support and Support Rating Floors

BTG Pactual IDRs are driven by its VR. Given its nature of merchant/investment
bank and relative small deposit base; Fitch believes that the probability of
support from the government is unlikely; hence its Support Rating is a '5' and
its Support Rating Floor remains in 'NF'.

RATING SENSITIVITY/KEY RATING DRIVERS - Subordinated Debt and Other Hybrids
Securities

Subordinated debt and other hybrid capital issued by BTG Pactual are all
notched down from the banks' VRs; as such these securities are notched twice
from BTG Pactual VR: one notch lower due to Loss Severity features and its
subordinated status, and a one-notch deduction due to moderate risk of
non-performance. The subordinated debt and hybrid capital ratings are
primarily sensitive to any change in the VR of the bank.

RATING SENSITIVITY/KEY RATING DRIVERS - PAN, BFRE, BM and BS

PAN, BFRE, BM and BS are 'strategically important subsidiaries' for BTG
Pactual and hence, notched once from the parent IDR. Fitch believes that
despite its current relative small size and incipient earnings generation
compared to the parent revenue source; these entities are part of the business
plan of BTG Pactual and the tools to implement their diversification plans in
the medium term towards consumer banking, real estate financing and other
capital market related activities. The IDRs and National Scale Ratings of
Banco Pactual subsidiaries may be affected if their strategic importance and
ability to provide support from BTG Pactual changes; even though this scenario
has a low probability of occurrence.

RATING SENSITIVITY/KEY RATING DRIVERS - BTGI

BTGI's long-term IDR rating reflects its role as an integral BTG Pactual group
and the implicit support BTGI receives from BTGH. According to Fitch's
criteria, BTGI is deemed as a core part of BTG Pactual Group. Despite its
evident links with the group (franchise, common management, relevance of its
revenue stream and completely aligned business model); BTGI is not a direct
subsidiary of BTGH; hence, its rating its notched once from the rating of
BTGH, the primary source of support to the entity.

Changes to the rating of BTG Pactual or BTGH may lead to changes to BTGI's
ratings. A material deterioration of BTGI's financial profile where sustained
losses and/or a significant increase of its leverage may hinder the overall
financial profile of BTG Group, may trigger a rating downgrade.

RATING SENSITIVITY/KEY RATING DRIVERS - BTGH

BTGH's long- and short-term IDRs and National Scale Ratings are equalized to
those of its sole operating subsidiary, Banco BTG Pactual S.A.'s (BTG Pactual,
IDR 'BBB-'/Outlook Stable). BTGH is a pure holding company and directly
controls 71.9% of BTG Pactual. The equalization of the ratings is based on the
high correlation between the probability of default for BTGH and the bank.
Both are incorporated in the same jurisdiction, being overseen by Brazilian
authorities.

Changes to the rating of BTG Pactual may lead to changes to BTGH's ratings.
Also, an increase of its double leverage ratio above 120% or a deterioration
of its debt service metrics may result in a downgrade of BTGH's ratings.

Fitch has taken the following rating actions:

BTG Pactual

--Long-term foreign and local currency IDRs affirmed at 'BBB-', Outlook
revised to Positive from Stable;

- Short-term foreign and local currency IDRs affirmed at 'F3';

- Viability Rating affirmed at 'bbb-';

- Support Rating affirmed at '5';

- Support Rating Floor affirmed at 'No Floor';

- Long-term National Rating affirmed at 'AA(bra)', Outlook revised to Positive
from Stable;

- Short-term National Rating affirmed at 'F1+(bra)';

- Senior unsecured notes, due in March 2016, foreign currency rating affirmed
at 'BBB-';

- Senior unsecured notes, due in July 2016, foreign currency rating affirmed
at 'BBB-';

- Senior unsecured notes, due in September 2017, foreign currency rating
affirmed at 'BBB-';

- Senior unsecured notes due in January 2020, foreign currency rating affirmed
at 'BBB-'.

- Subordinated notes due in September 2022, foreign currency rating affirmed
at 'BB';

BTGI

--Long-term foreign and local currency IDRs affirmed at 'BB+'; Outlook revised
to Positive from Stable;

--Support Rating affirmed at '2';

--Senior guaranteed notes affirmed at 'BBB-'.

BTG Holding

--Long-term foreign and local currency IDRs affirmed at 'BBB-'; Outlook
revised to Positive from Stable;

--Short-term foreign and local currency IDRs affirmed at 'F3';

--Support Rating affirmed at '5';

--Support Rating Floor affirmed at 'NF';

--Long-term National Rating affirmed at 'AA(bra)'; Outlook revised to Positive
from Stable;

--Short-term National Rating affirmed at 'F1+(bra)'.

PAN

- Long-term foreign and local currency IDRs affirmed at 'BB+', Outlook revised
to Positive from Stable;

- Short-term foreign and local currency IDRs affirmed at 'B';

- Viability Rating affirmed at 'b';

- Support Rating affirmed at '3';

- Long-term National Rating affirmed at 'AA-(bra)', Outlook revised to
Positive from Stable;

- Short-term National Rating affirmed at 'F1+(bra)'.

BFRE

- Long-term foreign and local currency IDRs affirmed at 'BB+', Outlook revised
to Positive from Stable;

- Short-term foreign and local currency IDRs affirmed at 'B';

- Long-term National Rating affirmed at 'AA-(bra)', Outlook revised to
Positive from Stable;

- Short-term National Rating affirmed at 'F1+(bra)'.

Brazilian Mortgages Cia. Hipotecaria (BM)

- Long-term foreign and local currency IDRs affirmed at 'BB+', Outlook revised
to Positive from Stable;

- Short-term foreign and local currency IDRs affirmed at 'B';

- Long-term National Rating affirmed at 'AA-(bra)', Outlook revised to
Positive from Stable;

- Short-term National Rating affirmed at 'F1+(bra)'.

Brazilian Securities Cia. de Securitizacao (BS)

- Long-term foreign and local currency IDRs affirmed at 'BB+', Outlook revised
to Positive from Stable;

- Short-term foreign and local currency IDRs affirmed at 'B';

- Long-term National Rating affirmed at 'AA-(bra)', Outlook revised to
Positive from Stable;

- Short-term National Rating affirmed at 'F1+(bra)';

- First debenture issuance due in October 2014, long-term National Rating
affirmed at 'AA-(bra)'.

Additional information available at 'www.fitchratings.com' or
'www.fitchratings.com.br'.

Applicable Criteria and Related Research:

-- 'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

-- 'National Ratings Methodology' (Jan. 19, 2011);

-- 'Securities Firms Criteria' (Aug. 15, 2012);

-- 'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 05,
2012);

-- 'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).

Applicable Criteria and Related Research:

Assessing and Rating Bank Subordinated and Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Securities Firms Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686137

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=817291

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Contact:

Fitch Ratings
Primary Analyst
Eduardo Ribas, +55-11-4504-2213
Associate Director
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor -
Sao Paulo - SP - CEP: 01418-100
or
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Director
or
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