Credito Real’s foreign bondholders weighing legal action in Mexico -sources

By Isabel Woodford

MEXICO CITY (Reuters) – International bondholders are considering taking legal action in Mexico to recoup losses from troubled non-bank lender Credito Real, four sources have told Reuters, after bank creditors secured a settlement earlier this month.

Credito Real bonds have lost about 99% of their value since the company defaulted on a 170 million Swiss franc ($175.98 million) bond in February, kicking off a commercial liquidation process criticized by shareholders for lacking transparency.

Bondholders collectively owed around $2 billion are now in early talks about joining legal proceedings led by local minority shareholders, said Mexico-based lawyer Teodoro von Harrsch, who represents the equity holders’ group.

“We are talking with bondholders to see if there’s a (legal) way we can help, we are looking for common ground,” von Harrsch said.

Communications seen by Reuters show that multiple private international bondholders said they hoped to sign onto a Mexican lawsuit, and they joined a Zoom call with von Harrsch on the matter last week.

Russia-based Alfa Capital, a billion-dollar fund which collectively holds $150 million in Credito Real bonds, is among those joining the case, according to one person at the fund.

“It’s for our image, we have to go to court and try,” the person told Reuters.

Alessandro Revelant, a private investor from Italy, said he is also seeking legal action, as did Stan Bozhenkom, a Russian national.

“In investment, you can lose money, ok,” Revelant told Reuters. “But when it happens like this, it’s difficult to accept.”

Large groups like British asset manager abrdn and Los Angeles-based DoubleLine Capital are also among those who hold bonds in the company, according to Refinitiv data.

Neither firm responded to requests for comment. Credito Real also did not reply, nor did its external auditors, Deloitte.

The company has publicly acknowledged there were flaws in its accounting practices, telling the Wall Street Journal in July there were “deficiencies (in) corporate governance.” Its chief executive departed in April, followed by the entire board in June.

Credito Real has said it was facing a probe from securities regulators, but no criminal proceedings have been made public.

The asset holders’ decision to look into legal action comes after Credito Real announced earlier this month it had reached debt agreements with banks including Banorte, Banco Santander (BME:) Mexico and the local units of BBVA (BME:) and Scotiabank.

Von Harrsch said bondholders were still exploring their options, but had not ruled out launching a civil case encompassing the company’s auditors, or funding a criminal investigation into the company’s management to aid prosecutors.

Bondholders, who along with other creditors are also trying to force Credito Real into a Chapter 11 proceeding in the U.S., face an uphill struggle as the most exposed group to the Credito Real saga, Fitch ratings said Tuesday.

“As most of the global bonds are unsecured, global bond holders are expected to face higher losses from the defaults… while holders of hybrid securities face the most risk in terms of recovery prospects,” Fitch said in an analyst note.

Credito Real in July requested to enter the U.S. Chapter 15 bankruptcy procedure, which means the case would stay in Mexico, while a Chapter 11 procedure, as sought by bondholders, would happen in the U.S.

Mexico has seen three publicly traded non bank lenders default in the space of a year, including leasing firm Unifin. [nS0N2ZN002]

The collapses have severely impacted the ability of the Mexican non-bank sector to raise international debt, which is expected to “remain highly restrictive for the foreseeable future,” Fitch said.

($1 = 19.9919 Mexican pesos)

($1 = 0.9660 Swiss francs)

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