- Half the nation's companies can't pay their debts on time
- Bankruptcy filings soared 29% to a monthly record in July
Brazil’s political and economic crises are creating one bright spot for finance bankers and lawyers looking for work: Firms including Rothschild and G5 Evercore are hiring to help ailing companies restructure their debt.
Boutique advisory firm G5, in which Evercore Partners Inc. has a 47 percent stake, hired Ricardo Moura and Marcio Santiago Goncalves, former heads of mergers and acquisitions at Bank of America Corp. in Brazil and Patria Investimentos SA, respectively. G5, which has about 75 employees, is also adding two associates as well as analysts and other junior employees, two people with direct knowledge of the hires said. Rothschild is also hiring, a person said, without giving specifics.
Restructuring firms are increasing staff as the contraction in Latin America’s biggest economy intensifies. Revenue is falling for many companies, while paying back debt becomes harder given the highest benchmark interest rates since 2006 and a currency that’s tumbled 40 percent in the past year. The bribery scandal roiling Petroleo Brasileiro SA has also created a credit squeeze for its suppliers. Firms dependent on commodities are suffering with that market’s collapse.
“Never before in Brazil’s history have we had so many big companies needing to restructure debt at the same time, and that’s creating a lot of demand for services from financial advisers to lawyers,” said Eduardo Munhoz, founding partner at E.Munhoz Advogados. The law firm was created in April and is aiming to have 20 lawyers by the start of 2016.
Munhoz said Brazil’s laws and regulations governing restructurings and bankruptcy will be tested as the nation moves out of a period in which credit was abundant.
Almost half of all Brazilian firms, or 3.9 million, aren’t paying at least part of their debts on time, according to credit-data provider Serasa Experian. Companies asking for legal protection from creditors reached a monthly record of 135 in July in Brazil, a 29 percent increase from June, Serasa said.
“Unfortunately, even in this difficult environment, some companies wait too long to restructure, only doing it when they have no more cash, the value of their equity has been destroyed and recovery is impossible,” said Claudio Citrin, a managing director at BR Advisory Partners Participacoes SA, a Brazilian investment-banking boutique that started a debt-restructuring advisory business a year ago.
“It is a cultural matter in Brazil: The owner gets depressed, acts like it’s a black mark against him, when he should be more proactive while he still can save his company,” said Citrin, who declined to discuss specific situations. “There is no reason to be ashamed. Restructuring is a normal process in the middle of a crisis like the one we’re in.”
Among BR Partners’ clients is Lupatech SA, a supplier for Petrobras that filed for bankruptcy protection in May.
G5 Evercore, created in 2007 by former Goldman Sachs Group Inc. partner Corrado Varoli, is an adviser to building companies Engevix Engenharia SA and OAS SA, two victims of the Petrobras bribery scandal.
G5 also performed an appraisal for Eneva SA’s share issuance. The Brazilian utility filed for bankruptcy protection in December.
Rothschild is helping PDG Realty SA Empreendimentos e Participacoes, once the largest Brazilian homebuilder by revenue, restructure its 5.8 billion reais ($1.6 billion) of debt. The cement maker Cimento Tupi SA hired Rothschild in July to renegotiate its debt payments.
Financial boutiques attract more clients needing debt-restructuring services because they don’t face the same conflicts of interest that lenders do, Citrin said. “Even if the bank is not a direct creditor of the company, it may have exposure to competitors or suppliers, and that may compromise the work,” he said.
Lawyers face the same dilemma. One of the reasons Munhoz left his former firm, Mattos Filho, Veiga Filho, Marrey e Quiroga Advogados, is because it’s a top adviser to big banks that are creditors in Brazil. While there, Munhoz represented OGX Petroleo & Gas Participacoes SA in the default of $3.6 billion in dollar bonds, the largest corporate debt failure in Latin America. Now Munhoz is working for OAS and PDG.