Cruzeiro’s Bonds Rally on Tender Offer Bets: Sao Paulo Mover

Bonds sold by Banco Cruzeiro do Sul SA, the Brazilian lender seized by regulators in June, rallied after the bank asked holders of its dollar-denominated bonds to identify themselves, spurring speculation it’s preparing an offer to buy back the securities at a discount.

Cruzeiro’s dollar bonds due in 2013 jumped 1 cent to 55 cents on the dollar at 11:05 a.m. in Sao Paulo, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority. The yield declined 185 basis points, or 1.85 percentage point, to 89.5 percent.

The Sao Paulo-based bank asked investors to come forward and disclose holdings for purposes of “future communications,” according to a statement distributed by Bondholder Communication Group, a London-based debt information agent hired by Cruzeiro. The request signals that Cruzeiro may be looking to renegotiate its foreign debt obligations, said Marco Aurelio de Sa, the head of trading at Credit Agricole Securities in Miami.

“This is a typical course of action for a company that’s going to restructure its debt,” de Sa said in a telephone interview. “Investors who thought there could be a total loss, now they know there is room for negotiation.”

Cruzeiro do Sul’s bonds have plunged since the central bank on June 4 ordered the nation’s deposit insurance fund, known as the FGC, to seize the lender for a period of 180 days because of “serious violations” of regulations.

Losses at the bank may amount to 2.5 billion reais ($1.23 billion) as an audit found irregularities in the bank’s loan portfolio, O Estado de S. Paulo reported July 14, citing an audit.

Cruzeiro sent the communication because the FGC is trying to get a better sense of who the foreign investor base is, according to a Cruzeiro press official who asked not to be identified because he’s not authorized to speak publicly.

To contact the reporter on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net Boris Korby in New York at bkorby1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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