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BVA Bondholders to Get $493 Million as Brazil Intervenes

Brazil’s privately owned deposit-insurance fund will pay 1 billion reais ($493 million) to some of Banco BVA SA’s local bondholders after the central bank took control of the company.

The intervention triggered an investor-protection mechanism that allows the early redemption of the so-called DPGEs, bonds sold by the bank that carry a guarantee from Fundo Garantidor de Creditos, Celso Antunes da Costa, the fund’s executive director, said yesterday in a telephone interview in Sao Paulo. Payments will begin on Oct. 24, he said.

BVA, a Rio de Janeiro-based lender that specializes in loans to midsize companies, became the seventh bank in Brazil seized or bailed out since 2010 after regulators found violations of industry standards and deteriorating finances.

FGC has 31 billion reais in assets after paying 2 billion reais to holders of DPGEs sold by Banco Cruzeiro do Sul SA, a Sao Paulo-based lender liquidated by regulators last month, da Costa said. The fund was created in 1995 and is financed by the biggest lenders in Brazil.

BVA has about 7.4 billion reais in debt, according to the central bank website, including $45 million in international bonds due 2014. The lender accounts for 0.17 percent of assets and 0.24 percent of deposits in Brazil’s financial system, according to the statement.

BVA holds stakes in asset-backed receivables funds, known as FIDCs. Holders of its FIDC Multisetorial BVA Master II will vote on Oct. 29 whether to liquidate the fund after Austin Rating downgraded it, according to a regulatory filing. The fund had 107.4 million reais in assets as of September, according to data from the Brazil securities regulator’s website.

Bank’s Deterioration

The central bank is taking “all possible measures to investigate,” the authority said in a statement, adding that it had to act against BVA because of “the deterioration of its economic and financial situation and the violations of norms that discipline the institution’s activity.”

The central bank named Eduardo Felix Bianchini the new manager of BVA, which has seven branches in Sao Paulo, Rio de Janeiro and Minas Gerais states.

“There are two solutions for the bank now: its liquidation or to find a new owner,” Luis Miguel Santacreu, an analyst at Austin in Sao Paulo, said in a telephone interview. “The bank didn’t have sufficient capital levels.”

Austin downgraded BVA in September to BB, meaning it “is vulnerable to the general and sector economic conditions,” according to the rating definition. Santacreu said the downgrade stemmed from a lack of information after BVA stopped reporting earnings. The bank’s last financial statement was for the second half of 2011.

No Buyer

Brazil sees slim chances of finding a buyer for BVA, a government official said. The bank had insufficient provisions for its credit portfolio, faced liquidity issues and had an unsustainable business model, the official said, requesting not to be named because he wasn’t authorized to speak publicly.

The current owners are unlikely to come up with capital to put the bank on its feet again, the official said.

The central bank declined to comment beyond what it said in its statement. BVA declined to comment, according to a spokesman who asked not to be named in accordance with bank policies.

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