(Repeats March 8 story for wider distribution. (For more
Reuters DEALTALKs, click ))
By Tatiana Bautzer
SAO PAULO, March 8 Brazil's largest banks are
increasingly demanding that companies put themselves up for sale
as a condition to cut loan principal amounts, providing a jolt
to an otherwise weak M&A climate in Latin America's largest
Since the start of September, about a dozen Brazilian M&A
deals have been related to restructurings, Thomson Reuters data
showed. That represents about 15 percent of total Brazilian
deals during the period. The percentage is higher among the
Over the same five-month period, eight of the 16 deals in
which Banco Bradesco SA, Brazil's top M&A lender, has
acted as adviser involved restructuring-related asset sales.
The banks have been bruised by an unprecedented credit
downturn that magnified Brazil's harshest-ever recession and the
fallout from a corruption scandal that hit many large corporate
Lenders have accepted losses north of 40 percent on the
value of principal owed by some companies, from lingerie maker
Scalina SA to sugar and ethanol mills Antonio Ruette
Agroindustrial and Unialco SA Álcool e Açúcar, five people
familiar with the cases said.
The sources, who spoke in recent weeks, requested anonymity
in order to discuss matters freely.
They said drugstore chain Brasil Pharma SA could
be the next candidate, as banks reduce the chain's 600
million-real ($190 million) debt by 40 percent and Grupo BTG
Pactual transfers its ownership, two of the sources
Banks such as Banco Bradesco SA, state-controlled Banco do
Brasil SA, Itaú Unibanco Holding SA and
Banco Santander Brasil SA are agreeing to cut
principal only if the companies' owners agree to transfer
ownership to a third party, the people said. The third party
could be a buyout firm or a strategic rival with better
prospects of running it profitably.
With Scalina, banks agreed to slash the company's debt by 44
percent after rival Lupo bought the company from a group led by
Carlyle Group LP funds, ending a dispute with lenders.
In Unialco's case, the company's assets were sold off as
part of a restructuring in which creditors forgave around 85
percent of its debts.
And Antonio Ruette's creditors agreed to cut its debt by 40
percent, but only after a deal was reached in which Proterra
Investment Partners, a fund backed by Cargill Inc,
took control of its mills from the ethanol company's eponymous
Brasil Pharma could find a solution to transfer
the ownership within weeks, one of the sources said. Grupo BTG
Pactual, BR Pharma and the creditors declined to comment.
Banks are demanding ownership changes in order to stem
defaults and curb the large loan-loss provisioning that caused
their profits to decline last year for the first time since
An initial phase of debt restructurings in 2015 had focused
solely on extending terms of troubled loans. Bankers say they
are hoping the latest deals will bring more definitive
After refinancing or setting aside provisions for about 140
billion reais of loans last year, lenders have grown wary of
leaving existing shareholders in place, a practice that has
tended to create a situation of "moral hazard," three of the
The new strategy may be allowing more companies to avert
bankruptcy filings, which decreased by 22 percent in the first
two months of this year, according to figures from Experian
The ownership change deals can also create business for the
banks in the form of M&A fees, although credit losses tend to
overshadow that revenue by a large degree.
Stricter regulatory scrutiny stemming from the corruption
scandal has contributed to a 55 percent drop in announced deals
in Brazil so far this year, Thomson Reuters data showed,
compounding the impact of the recession.
($1 = 3.1560 reais)
(Additional reporting by Guillermo Parra-Bernal; Editing by
Christian Plumb and Matthew Lewis)