At the height of the pandemic, investors rushed to snap up debt from Americanas SA. Online sales were skyrocketing and billionaires holding stakes in some of the world’s biggest consumer brands vouched for the retailer’s future.
(Bloomberg) — At the height of the pandemic, investors rushed to snap up debt from Americanas SA. Online sales were skyrocketing and billionaires holding stakes in some of the world’s biggest consumer brands vouched for the retailer’s future.
Three years later, it filed for bankruptcy protection.
The Rio de Janeiro-based company imploded following a revelation that it was hiding more than 20 billion reais ($3.8 billion) of debt. Bonds that were trading for 104 cents on the dollar in mid-2021 have plummeted to about 10 cents as distressed-debt investors move in, girding for a legal battle likely to play out in Brazilian courts.
Americanas, which has been backed by Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira for more than four decades, saw its chief executive officer depart after less than two weeks on the job after finding “accounting inconsistencies” tied to debt from supplier financing operations. Other Brazilian retailers rushed to reassure analysts that all their debt was properly booked on their balance sheets.
Americanas said Thursday it filed for bankruptcy protection at a Brazilian court, citing liabilities of approximately 43 billion reais (about $8.2 billion). The company had been granted protection against demands for early debt repayments for 30 days by a local court, but Banco BTG Pactual SA obtained a favorable decision Wednesday partially reversing the order.
“Brazil has had some of the most painful default restructuring records in my experience,” said Ray Zucaro, the chief investment officer at RVX Asset Management in Miami. “The legal battle has just started.”
Investment banks Moelis & Co. and Seaport Global Securities LLC are separately pitching to organize the company’s bondholders into a group. Investors holding local debt have hired lawyers and are deciding whether to work with a financial adviser, according to a person familiar with the matter who requested anonymity as the discussions are private.
Total bond debt outstanding for Americanas and its subsidiaries JSM and B2W Digital Lux stands at about $2.9 billion, including global and local notes, according to data compiled by Bloomberg. About $163 million comes due in the next three months, with the next coupon payment of 135 million reais due April 17.
Holders of these bonds include funds run or administered by Banco do Brasil SA, Banco Santander SA, Fidelity, GAM Holding AG and BTG Pactual, according to data compiled by Bloomberg, based on the most recent disclosures from investors. The data include holdings of passive funds, which have little choice in what they buy or sell, and may not encompass investors that aren’t required to disclose debt transactions. Holders tracked by Bloomberg own about 22% of the total debt outstanding.
Banco do Brasil, Santander, Fidelity and BTG didn’t immediately reply to requests seeking comment. A representative for GAM said the company doesn’t own the fund that holds the bonds, but just provides management services.
S&P Global Ratings, Fitch Ratings and Moody’s Investors Service downgraded Americanas’s rating by multiple notches because of the accounting issues. Americanas first tapped overseas bond markets in the second half of 2020, saying at the time it was seeking to “access a new source of funding.”
The company reached a market value of over 66 billion reais in Brazil’s stock exchange amid the coronavirus pandemic, boosted by its e-commerce arm. The firm merged its brick-and-mortar and online divisions in 2021, when Lemann and his partners gave up control of the company. At their buyout firm 3G Capital, the billionaire trio had participated in deals involving Kraft Heinz Co. and Burger King Holdings Inc. 3G itself does not hold a stake in Americanas.
Earlier this week, Lucror Analytics analyst Lorena Reich recommended that clients hold Americanas bonds trading in the high 10s to low 20s, citing an estimated liquidation value “in the 15-20s” and saying prices already reflected a “significantly increased” likelihood of a restructuring.
The company’s main shareholders, including Lemann, have offered to inject 6 billion reais into Americanas, but banks asked for more than 10 billion reais, Bloomberg News reported last week. The negotiations continue and Americanas hired Rothschild & Co. as its adviser in the debt renegotiation.
Unless key shareholders step in, “bonds could go to below 10 as all the suppliers, banks will get their money first,” said Peter Varga, lead portfolio manager for emerging-market corporate debt at Erste Asset Management GmbH in Wien, Austria. “The company appointed Rothschild as adviser and those guys are hard negotiators, so I would be cautious here.”
(Adds plans by investors holding local debt in 7th paragraph, detail on 3G in 12th)
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