Brazil’s Banco Cruzeiro Seeks Tender Offer Amid WritedownGabrielle Coppola and Boris Korby
Banco Cruzeiro do Sul SA’s $1.6 billion of bonds plunged after the deposit-insurance fund overseeing the Brazilian bank began a repurchasing offer that will saddle creditors with losses of as much as 74 percent.
Cruzeiro do Sul’s $400 million of subordinated notes due 2020 fell 1 cent to 30 cents on the dollar after the fund, known as FGC, offered 31 cents for the bonds to investors who tender by Aug. 28 and 26 cents afterward. The bank’s bonds due 2016 fell 9.25 to 47.75 cents at 2:34 p.m. in Sao Paulo, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority. FGC offered 56 cents on those notes to creditors who sell by Aug. 28.
The discounted bond repurchase is part of the deposit-insurance fund’s attempt to cover a capital shortfall after Cruzeiro do Sul took a writedown of 3.11 billion reais ($1.5 billion). An audit requested by the fund, known as FGC, found accounting violations that included the balance sheet showing more than 1.3 billion in assets that don’t exist, FGC officials said at a press briefing yesterday in Sao Paulo.
“There are a couple doubts in the market, but I believe the market has to accept the tender,” Luiz Campos, an emerging-market portfolio manager at Dinosaur Securities LLC, said in a telephone interview from Sao Paulo. If the deal falls through and “the bank goes to liquidation, bondholders will lose more money.”
Central bankers seized Cruzeiro do Sul on June 4 after finding “unsubstantiated asset items” and placed it under the temporary administration of the privately owned FGC amid a probe into possible accounting fraud. The fund requested the audit by PricewaterhouseCoopers LLC as part of its effort to find a buyer for the bank.
“We divided up the losses in a fair way,” Celso Antunes da Costa, the FGC’s executive director, said at yesterday’s briefing. “We’ve found a way to save the bank.”
The FGC plans to sell the bank by Sept. 12 and will recommend liquidation if that fails, Antunes said. A minimum of 90 percent of creditors must accept the repurchase offer for it to proceed, he said. The deal is also dependent on the FGC receiving a binding offer from a financial institution to acquire control of Cruzeiro do Sul, according to today’s statement.
The average discount that Cruzeiro’s local and international creditors are being asked to accept is 49 percent, Antunes said. In addition to the dollar bonds due in 2016 and 2020, the buyback also includes securities due in 2012, 2013, 2014 and 2015. Bank of America Corp. and HSBC Holdings Plc are arranging the bond repurchase offer.
“I don’t think people will accept” the repurchase terms, Carlos Legaspy, who manages about $350 million at Precise Securities and bought Cruzeiro do Sul senior bonds after the lender was taken over by the FGC, said in a telephone interview from San Diego. “It becomes a game of chicken, to see who blinks first.”
Bingham McCutchen LLP, a Boston-based law firm, plans to hold a conference call with bondholders tomorrow after being contacted by “a number of” them, Timothy DeSieno, a partner at the firm, said in an e-mailed statement today.
“The proposed sequencing -- ‘creditors make concessions now, and we will figure out the rest later’ -- is consistent with behavior in recent years in many stressed bank situations,” DeSieno said in the statement. “Experience shows that investors are best served to be well-organized with a credible alternative plan at a very early time.”
Cruzeiro do Sul is at least the sixth mid-size Brazilian bank to need emergency action from regulators since 2010 as the industry struggles to get long-term financing and Latin America’s biggest economy slows.
Banco BTG Pactual SA, the Sao Paulo-based bank controlled by billionaire Andre Esteves, acquired Banco Panamericano SA in January 2011. BTG received a 1.3 billion-real loan from the FGC to help finance the acquisition of Panamericano, which faced an accounting-fraud probe. The central bank liquidated Rio de Janeiro-based lender Banco Morada SA in April 2011.
Cruzeiro do Sul’s shares fell 6.1 percent to 1.68 reais today, extending losses this year to 88 percent.