JPMorgan Makes Push for Debt-Restructuring Business in Brazil

  • Bank drops initial idea of lending to distressed firms
  • Goal is to keep acting as adviser and exchange dealer manager

Competitors might have been surprised to see JPMorgan Chase & Co. bankers Ricardo Leoni and Daniel Pombo at the negotiating table earlier this year helping Brazilian mining company Samarco Mineracao SA restructure about $3.8 billion in debt.

After all, restructuring advice isn’t what the New York-based bank is known for in Brazil. Leoni and Pombo are trying to change that.

As demand for traditional banking services suffers through a nationwide credit squeeze and the worst recession in a century, global banks such as JPMorgan and Zurich-based Credit Suisse Group AG are trying to elbow in on the top players in the restructuring business, including Moelis & Co., PJT Partners Inc., Rothschild and Lazard Ltd.

“As the top bond underwriter in Latin America, we saw our business really shrink on the flow side in 2015, so it was a strategy for us to look for new opportunities," Leoni, head of debt capital markets for JPMorgan in Brazil, said in an phone interview this month.

International bond sales by Brazilian companies tumbled 82 percent to $7.8 billion in 2015, according to data compiled by Bloomberg. That was one incentive for Pombo, head of the global restructuring business at JPMorgan, to travel to Brazil last year to pitch the bank’s services. His first idea was to provide loans for companies that have filed for bankruptcy protection, so-called “debtor-in-possession” financing.

DIP Financing

“Soon I realized that in Brazil it is more complicated to provide financing for distressed companies,” Pombo said.

In the U.S. and Canada, bankruptcy laws make lenders comfortable enough to take on risk by giving them priority status for repayment, Pombo said.

“A lot of countries have enacted laws that mimic some of the protections that exist in the U.S., but there haven’t been enough cases in which everything worked as expected to lend into that regime,” he said.

In the meantime, JPMorgan says if it can’t lend to distressed companies in Brazil it can advise them on how best to restructure, a service it offers less frequently in the U.S.

“We usually don’t take much financial-advisory work in the U.S. because we have lending exposure to many companies there, and, of course, there’s a conflict,” Pombo said, adding that it’s different in Brazil. “As we expand our reach to other countries where we don’t have so much lending exposure we can do restructuring advisory, but only in the context of helping a long-established client.”

Credit Suisse

Credit Suisse is also taking on restructuring clients in Brazil. Grupo Virgolino de Oliveira, one of the scores of Brazilian sugar and ethanol producers that suffered from a slump in commodity prices, hired the Swiss bank to help restructure its $735 million of dollar-denominated debt, Chief Executive Officer Joamir Alves said in a telephone interview from Sao Paulo in June. The bank, which previously provided upfront loans before underwriting the bonds for the company, declined to comment on Brazil restructuring work.

JPMorgan has acted as dealer manager in distressed bond exchanges for USJ Acucar e Alcool SA, one of the biggest independent sugar and ethanol producers in Brazil, and Gol Linhas Aereas Inteligentes SA, the Brazilian airline that swapped part of its $780 million in dollar-denominated notes. The bank, which declined to comment on any specific deals, didn’t underwrite of any of those bonds.

“We have a very good understanding of what works in the bond markets and a very differentiated relationship with bond investors from the advisory boutiques because we are a top bond underwriter,” Pombo said. “We also have a very good idea of what works for banks in terms of restructuring because we are a bank.”

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