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SAO PAULO, April 13 (Reuters) - Brazil's slow economic recovery and the need for lenders and pension funds to offload souring credit from their balance sheets are giving Grupo BTG Pactual SA an opportunity to expand distressed debt operations over the coming years, a senior executive told Reuters.
Alexandre Camara, head of special situations at BTG Pactual , said Latin America's No. 1 independent investment bank is buying more collateralized, non-performing corporate loans and distressed property in Brazil on the expectation that cash-strapped companies will offload assets at fire-sale prices to raise money.
Currently, the special situations unit oversees about 30 billion reais ($9.5 billion) worth of bad corporate credit at face value and 144 property assets. The bank has earmarked about 1 billion reais to buy more of those assets, which could boost the unit's portfolio by as much as 66 percent in three years, he said.
Brazil's harshest recession on record and the longest credit downturn since the 1990s have led banks to reclassify about 150 billion reais in loans to riskier categories in the past year, central bank data show. Refinanced loans represent 11 percent of Brazil's outstanding credit.
Most of that stems from loans to companies struggling with flagging sales and the highest borrowing costs among the world's major economies, which has resulted in record bankruptcy filings.
Firms ensnared in Brazil's worst-ever corruption probe, "Operation Car Wash," have also lost access to credit in the past two years, impacting their supply chains.
The situation shows how BTG Pactual is cautiously adding risk in segments that remain unexplored by most domestic banks despite their potential for large profits. Since 2010, BTG Pactual has developed proprietary systems to manage bad credit and turned Recovery do Brasil SA into Brazil's No. 1 consumer debt collection firm.
"We are scouring for companies facing short- and mid-term challenges, but that are structurally solid in the long run," Camara told Reuters this week.
Collection of troubled corporate loans remains in its early stages in Brazil, giving BTG Pactual's special situations platform an edge, Camara said. Recently, the bank teamed up with a group of investors to create Enforce Gestão de Ativos SA, replicating Recovery's model in the distressed corporate loan market.
The Dec. 2015 sale of BTG Pactual's stake in Recovery helped accelerate the bank's shift towards distressed corporate debt and property, executives have said.
The special situations unit also provides turnaround financing tied to collateral, and invests in legal claims and similar assets it can either collect or repackage into high-yielding securities, Camara said.
Distressed debt collection firms acquire large portfolios of credit from other creditors at a steep discount and then rework each loan individually, hoping to reap a profit after repackaging them into securities, taking over the collateral or restructuring them.
For banks, bad-loan sales help them clean up their balance sheets in times of economic hardship. Analysts and industry specialists forecast activity in the bad corporate debt market to gain traction this year, with more state-controlled and private-sector lenders seeking to shed bigger chunks of problematic loans.
Pension funds like Postalis Instituto de Previdência Complementar, state development bank BNDES and regional banks could soon ride the wave too, two people familiar with the matter told Reuters recently.
$1 = 3.1452 reais Editing by Bill Rigby