Houlihan, Moelis Expand Brazil Teams as Debt Restructurings Boom

Boutique investment banks and law firms in Brazil are hiring as demand for advice on debt restructurings booms in Latin America’s biggest economy.

(Bloomberg) — Boutique investment banks and law firms in Brazil are hiring as demand for advice on debt restructurings booms in Latin America’s biggest economy. 

Moelis & Co., one of the nation’s top restructuring advisers, hired three people this year for its Sao Paulo office, which has about 20 staff total. And Houlihan Lokey Inc. announced in March it hired banker Bruno Baratta from Lazard Ltd. to start an office in Sao Paulo, where he’s building an initial team of about 10 people.  

“Thanks to the high level of real interest rates in Brazil we may still read a lot of bad news about Brazilian companies going forward,” said Ricardo Lacerda, chief executive officer at BR Advisory Partners Participacoes SA. He said fees from debt restructuring represent about 30% of the company’s investment-banking revenue this year, compared to almost nothing in 2022.

Interest rates in Brazil are at a six-year high, and credit stress that followed the collapse of retailer Americanas SA and monetary tightening in the US and Europe have increased leverage at Brazilian companies and made it harder to borrow at home and abroad. That’s increased demand for advice from firms struggling with too much leverage. The number of companies that filed for bankruptcy protection in Brazil this year through May rose to 501, 50% more than in the same period last year, according to credit data provider Serasa Experian. 

“There was the initial impact of the Covid pandemic, with a lot of cheap credit in the market, and after that interest rates went from 2% to almost 14% in a 15-month time period,” Moelis’s Otavio Guazzelli, the New York-based firm’s co-head for Brazil, said in an interview. “The Brazilian real never returned to its pre-pandemic level, and cash flow didn’t rebound as much as expected, so many companies ended up with significant leverage in a moment when refinancing is challenging.” 

Some industries, such as retail, are especially hard-hit as consumers change their buying habits, with the Americanas case adding to the pressure, said Jorio Salgado-Gama, co-head for Brazil at Moelis.

Moelis is representing global bondholders in debt restructuring from companies including Americanas and Light SA, the power company that filed for bankruptcy protection in May. It has also being hired by telecommunication firm Oi SA and chemical and fertilizers producer Unigel SA to advise on debt talks.

Changes in Brazil’s bankruptcy law that took effect in January 2021 brought more security for investors that provide financing for distressed companies, including those under court protection from their creditors, said Erick Alberti, a Moelis managing director in Brazil.

Houlihan’s clients include Brazilian service provider Atento SA and cement producer InterCement Participacoes SA, and it’s working with bondholders of Unigel and Oi. 

“When I started negotiations with Houlihan to open an office in Brazil, we didn’t know we would have so much debt restructuring going on in 2023,” Baratta said. “We may see more cases, considering growth uncertainties and the high level of interest rates, but there have been some positive signs in the last few weeks and we certainly hope for a healthy recovery.”

About 65% of Houlihan’s revenue globally comes from advising on mergers and acquisitions and capital raising, according to Baratta, who said the bank is planning to provide its full suite of services in Brazil.        

Roberto Zarour, who used to be the sole restructuring partner at Lefosse Advogados, said his practice has added four partners since last October. The firm has been advising a group of local bondholders of Light, and helped airline Gol Linhas Aereas Inteligentes SA in its talks for new financing. 

“I think the debt-restructuring wave is here, and I think it will continue,” Zarour said.

The biggest challenge for a company is to act at the right time to solve its debt problem, said Fabiana Balducci, a director at BR Partners. 

“Many times we enter into a restructuring process that is already worn out, which passed the point of no return,” said Balducci, a former Credit Suisse executive and restructuring veteran that joined BR Partners in October 2021. 

“We can do things proactively, avoiding a situation that would be worse for the company,” said Andrea Amorim, another director at BR Partners.

Some companies have assets such as legal claims that could be sold to investors, bringing in needed cash, and don’t even realize that would be an alternative for them, Balducci said. In one example, BR Partners helped clothing retailer Marisa Lojas SA with the sale of tax-credit rights to local alternative-asset manager Quadra Gestao de Recursos.

BR Partners is an adviser in more than 10 restructuring deals, including travel agency chain CVC Brasil Operadora e Agencia de Viagens SA, Inbrands Participacoes SA and even a football team, Santos Futebol Clube. Companies seek experienced investment-banking boutiques that are not their creditors when difficult times come, Lacerda said.   

“We don’t buy paper from companies we are restructuring, and you will never wake up with our fund trying to take over your company,” Lacerda said. 

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