Goldman, Morgan Stanley Try to Curb Derivatives Losses in Brazil

Goldman Sachs Group Inc. and Morgan Stanley asked for more collateral from the struggling Brazilian chemical producer Unigel Participacoes SA as the Wall Street firms try to stem losses on their Brazil derivatives businesses, people familiar with the matter said.

(Bloomberg) — Goldman Sachs Group Inc. and Morgan Stanley asked for more collateral from the struggling Brazilian chemical producer Unigel Participacoes SA as the Wall Street firms try to stem losses on their Brazil derivatives businesses, people familiar with the matter said.

The two banks hold a roughly $40 million joint position in exchange-rate derivatives sold to Unigel, with Morgan Stanley holding the bigger stake, the people said, asking not to be identified discussing private matters. The chemical maker has so far refused their collateral demand, according to the people.

There’s growing concern that Unigel, whose bonds trade at around 33 cents on the dollar, is headed for a debt restructuring, the people said. The company, which is in talks with bondholders, is poised to breach a covenant on local bonds after high interest rates at home and lower fertilizer prices globally eroded earnings and sent its leverage ratio skyrocketing.

Unigel has suspended operations temporarily at two fertilizer plants it leased from Petroleo Brasileiro SA in northeastern Brazil, while it tries to reduce how much it pays the state-controlled oil producer for natural gas it uses as a feedstock.

Morgan Stanley and Goldman Sachs are also creditors of Atento SA, a Sao Paulo-based call-center operator that recently restructured its debt, according to the people. Atento failed to pay the derivatives on time and instead issued $40 million of notes backed by receivables maturing in two years with a payment-in-kind component, according to Fitch Ratings.

Goldman Sachs, JPMorgan Chase & Co. and Bank of America Corp. have exposure to Americanas SA, the retailer that collapsed after discovering a hole of more than 20 billion reais ($4.2 billion) in its balance sheet. The three have swaps positions with Americanas of more than 1.8 billion reais, according to the firm, which is now under court protection from its creditors.

Representatives of Goldman Sachs, Morgan Stanley, Unigel and Atento declined to comment.

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