BTG Is Back in Growth Mode With Eye on Distressed Company Loans

(Bloomberg) -- Grupo BTG Pactual, the Brazil investment bank that slashed its workforce this year and sold off assets to survive a liquidity crisis, is back in expansion mode.

The firm plans to hire about 56 people and invest 1 billion reais ($318 million) of its own capital over the next year on corporate non-performing loans, Alexandre Camara, head of special situations, said in an interview at the company’s Sao Paulo headquarters. The purchases will be throughout Latin America, but mostly in Brazil, Camara said.

BTG is pushing into distressed corporate loans as delinquency rates in Brazil soar, with late payments for companies reaching 3.1 percent of the 1.575 trillion reais in total credit outstanding in August, according to the central bank. Companies are struggling to pay back their debt as the country emerges from a two-year recession that was the worst in a century and interest rates hover near record highs. Banks have also been pulling back on lending after a nationwide corruption probe ensnared many of the country’s biggest firms.

“Now it is time to invest in corporate loans of companies facing temporary difficulties but with good potential,” Camara said. “Even very good companies don’t have enough capital.”

Supply of those kinds of loans is growing, “and as the economy starts to improve, you can more easily give them a price,” he said. Distressed consumer loans will “suffer a bit more before starting to recover,” so it’s not yet time to jump into that market, according to Camara.

Banco Safra SA is also investing in non-performing corporate loans, two people with direct knowledge of the matter said. Safra declined to comment.

70-Member Team

BTG already has 14 employees looking for investing opportunities and plans to build the team to about 70 people who will also manage the portfolio and try to make recoveries on soured loans.

The firm, which has invested in troubled assets since it was founded in 2008, saw its own bonds reach distressed levels last year after its founder and former Chief Executive Officer Andre Esteves was arrested in November in connection with the corruption scandal. To survive, BTG sold some of its most valuable assets and secured a credit line from Brazil’s deposit-insurance fund, known as FGC. Esteves, who was moved to house arrest from jail in December and released in April, has denied any wrongdoing through his lawyers. BTG announced Wednesday that it has paid back all the FGC credit lines.

BTG Is Back in Growth Mode With Eye on Distressed Company Loans

Total assets at the firm fell to 213.3 billion reais at the end of the second quarter from 302.8 billion reais in the third quarter of 2015, before Esteves’s arrest.

Among the sales was BTG’s 82 percent stake in Recovery do Brasil Consultoria SA, the biggest Latin American distressed-asset-management firm, which Itau Unibanco Holding SA purchased in April for 640 million reais.

BTG was able to hold on to a portfolio of corporate distressed debt it acquired in 2014 when it bought what was left of Banco Bamerindus SA, a lender liquidated in 1997. The assets had a historical value of about 3 billion reais at the time of the liquidation, Camara said.

BTG profits got a boost this year from Brazil corporate international bonds it purchased at distressed prices that have since recovered.

Good Potential

The new effort will focus on acquiring corporate non-performing loans of at least 2 million reais of companies facing temporary difficulties but with good potential to recover if given access to funds, Camara said. Total corporate credit outstanding fell 7.7 percent this year through August, central-bank data show.

BTG is optimistic it can leverage its long experience in the distressed-asset business in Brazil.

“We’re familiar with the laws here, so we can profit with tailor-made deals," Camara said, adding that attempts at investing in the market as if it were an “assembly line” would fail because the risks are still too high in Brazil.