By Isabel Woodford
MEXICO CITY (Reuters) – International bondholders are considering legal action in Mexico to recoup losses from troubled non-bank lender Credito Real, four sources 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, triggering a commercial liquidation process criticized by shareholders for its lack of transparency.
Bondholders who collectively owed about $2 billion are now in preliminary talks to join legal proceedings being led by local minority shareholders, said Mexican attorney Teodoro von Harrsch, who represents the shareholders’ group.
“We are talking to the bondholders to see if there is a (legal) way to help, we are looking for common ground,” von Harrsch said.
Communications seen by Reuters show that several private international bondholders have said they hope to sign a Mexican lawsuit, and they joined a Zoom call with von Harrsch about it last week.
Russia-based Alfa Capital, a billion-dollar fund that collectively owns $150 million in Credito Real bonds, is among those joining the deal, according to a person at the fund.
“It’s for our image, we have to go to court and try,” the person told Reuters.
Alessandro Revelant, an Italian private investor, said he was also seeking legal action, as was Stan Bozhenkom, a Russian national.
“In investing you can lose money, okay,” Revelant told Reuters. “But when it happens like that, it’s hard to accept.”
Major groups like UK asset manager abrdn and Los Angeles-based DoubleLine Capital are also among those holding bonds in the company, according to Refinitiv data.
Neither company responded to requests for comment. Credito Real also did not respond, nor did its external auditors, Deloitte.
The company has publicly acknowledged that there were flaws in its accounting practices, telling the Wall Street Journal in July that there were “shortcomings (in) corporate governance.” Its CEO left in April, followed by the full board in June.
Credito Real said it was under investigation by securities regulators, but no criminal proceedings have been made public.
The asset holders’ move to take legal action comes after Credito Real announced earlier this month that it had reached debt deals with banks including Banorte, Santander Bank (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 suit encompassing the company’s auditors or funding a criminal investigation into the company’s management to help prosecutors.
Bondholders, who along with other creditors are also trying to force Credito Real to file Chapter 11 proceedings in the United States, face an uphill battle as the group most exposed to the saga Credito Real, Fitch Ratings said on Tuesday.
“As most global bonds are unsecured, holders of global bonds are expected to face higher losses from defaults…while holders of hybrid securities are most at risk in terms of recovery prospects. “, said Fitch in an analyst note.
Credito Real filed in July to enter U.S. Chapter 15 bankruptcy proceedings, meaning the case would remain in Mexico, while a Chapter 11 proceeding, as bondholders want , would take place in the United States.
Mexico has seen three listed non-bank lenders default in the space of a year, including leasing company Unifin. [nS0N2ZN002]
The collapses have severely affected the ability of Mexico’s nonbank sector to raise international debt, which is expected “to remain very tight for the foreseeable future,” Fitch said.
($1 = 19.9919 Mexican pesos)
($1 = 0.9660 Swiss francs)