Brazil Bank to Double Restructuring Team as Bankruptcies Surgeby
Brasil Plural is also hiring for equity sales, research
CEO Riechert says one focus is on credit, equity recovery
Brasil Plural SA Banco Multiplo, the investment-banking boutique founded by former UBS Pactual executives, plans to almost double the size of a team that helps distressed companies restructure as Brazil’s record bankruptcy filings bolster demand for the service.
Plural will add about 10 people to the group, which accounts for more than half the Sao Paulo-based firm’s investment-banking revenue, Chief Executive Officer Rodolfo Riechert said in an interview.
“We need people urgently,” Riechert said. “The business is going to grow even more because many companies that were in denial now realize they don’t have any other alternative than to go to their creditors and renegotiate their debt.”
Bankruptcy filings in Brazil almost doubled to a record 1,098 this year through July, according to data provider Serasa Experian. Companies are having trouble paying back debt as the worst recession in a century, a bank credit squeeze, high interest rates and a nationwide corruption probe weigh on profit and revenue. The economic contraction fueled a political crisis that culminated this week with the impeachment of former President Dilma Rousseff.
Plural isn’t the only firm that sees an opportunity. The law firm Souza Cescon Barrieu & Flesch Advogados hired Fabio Rosas, a top restructuring lawyer, two months ago from TozziniFreire Advogados to head the team there.
“The restructuring business used to be the ugly duckling among advisory services because it doesn’t have the glamor of M&A or equity underwriting and the fees are usually smaller, but now it’s the breadwinner for everybody,” Rosas said in an interview.
Fees for investment banking in Brazil fell 4 percent this year through August from the same period last year, to $281 million, the lowest for the period since 2005, according to research firm Dealogic.
Plural’s restructuring business represents about 15 percent of total revenue, which may reach 500 million reais ($154 million) this year, Riechert said, adding that the contribution could grow to as high as 20 percent. The company not only restructures debt for clients, “we go deeper in proposing a plan for recovery, and we also put our own team in to manage the company,” he said.
Plural recently transferred four executives from its investment-banking business to the restructuring team, which is run by co-heads Warley Pimentel and Fabio Vassel. The bank is working with 15 clients, four of which now have Plural partners as CEOs, Riechert said.
Clients include Ecovix, the Rio de Janeiro-based shipyard unit of Grupo Engevix, which got tangled in the nation’s corruption probe and has 4 billion reais in debt. Plural is also working with Inepar SA Industria e Construcoes, a Brazilian manufacturer of electricity-transmission equipment that filed for bankruptcy protection in August 2014.
“Inepar is a very successful case of restructuring and also an innovative one: The company issued the first local perpetual bond in Brazil’s history, with a total of 1.7 billion reais in total debt and a debt-to-equity conversion,” Pimentel said in an interview.
The investment bank also helped Lojas Colombo, the men’s clothing chain, reach an out-of-court agreement to restructure 1.5 billion reais in debt in a transaction that involved the issuance of a convertible bond, avoiding a bankruptcy filing.
Riechert and his partner Andre Schwartz, former partners at Banco Pactual SA who moved to UBS Pactual when the Swiss-controlled bank bought that company in 2006, created Plural as an asset-management and financial-advisory firm in 2009. Plural, which received a license to operate as a bank in August 2012, employed 315 people in 2013. As the Brazilian market shrank it later reduced the team to 215 and now has 260 employees, company officials said.
“We are reinventing ourselves,” said Riechert, adding that the firm has had a “small profit” in the past three years while revenue has been growing about 30 percent a year.
Restructuring work led Plural to the realization that there was a need for a new type of business in Brazil: distressed equity recovery.
“Many private equity investors and pension funds that injected capital into companies when the economy was booming are finding it very difficult to get out of their investments,” Riechert said.
Earlier this year Plural transferred three executives from the investment-banking business to a team that helps those investors divest. It’s led by Pedro Guimaraes, a former Grupo BTG Pactual partner who joined Riechert’s company in 2011. Plural has about 1.5 billion reais under management from firms in the oil-and-gas, electrical and real estate sectors, and is hiring three more employees for the business, Riechert said.
“We are helping pension funds liquidate their positions, recovering the most equity value possible,” he said.
The new Brazilian government is also focused on the problem of bankruptcies. The nation’s development bank, known as BNDES, announced a credit line of 5 billion reais that will support purchase of assets from companies in bankruptcy protection, BNDES President Maria Silvia Bastos Marques told reporters in Brasilia on Aug. 25.
Plural is also hiring for the credit-recovery business, with about 5 billion reais in face value of distressed credit under management, and is betting on the return of the equity-issuance market, with plans to add two equity sales employees and two research analysts.
An additional one or two executives will come aboard for the corporate desk, which offers swaps and exchange-rate transactions to clients, Riechert said.
“The business is growing, we already have more than 1,000 clients, with the fees from those transactions representing about 10 percent of our revenue,” he said.
Plural, which has about 50 partners, also has a reinsurance company called Terra Brasis Re SA, with 35 employees. Also part of the group is Geracao Futuro Corretora de Valores SA, Plural’s retail-distribution arm, with about 210 employees and 200,000 clients. Plural is one of the owners of Triar Wealth Management, a private-banking firm with offices in New York and Miami. In total the group has about 45 billion reais in assets under management. The firm acts as fiduciary administrator for 10 billion reais.
“About 85 percent of our revenue comes from fees -- we are a client-based firm,” Riechert said.