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Creditors of bankrupt Brazilian bank Banco Cruzeiro do Sul propose debt-to-equity swap

January 10
4:17 AM 2014

Bondholders of Brazil-based Banco Cruzeiro do Sul SA that went bankrupt in 2012 are seeking a debt-to-equity swap on unsecured debt worth $2.3 billion in a bid to get their money back more quickly, Bloomberg reported.

Law firm Partner Marcelo Godke Veiga said that by eliminating the lender of unsecured debt and leaving it with assets worth BRL 2.7 billion or $1.1 billion, the swap could pave the way for a sale of Cruzeiro do Sul and enable creditors to get back some of their money in only two years instead of over five years. Veiga is a partner at Godke Silva & Rocha, the Sao Paulo law firm that is advising some of the bondholders of the bankrupt lender.

In a phone interview, Veiga told Bloomberg, "This would be the first time this type of exchange would happen with a Brazilian liquidated bank."

After regulators found that Cruzeiro do Sul violated banking rules, Brazil took over the lender in 2012 and turned its management to the country's deposit insurance fund. The central bank said it would liquidate the bank three months later after attempts to get a buyer were not frutiful. The event sparked what was then considered as the biggest default on dollar bonds in Latin America in over ten years, the report said.

Two people knowledgeable about the situation told Bloomberg that the debt-to-equity swap has already been broached with the bank's liquidator, Eduardo Felix Bianchini. The report said Bianchini did not want to comment on the idea since he has not yet received a formal proposal but only had informal talks with bondholders of Cruzeiro do Sul.

Citing an official list of creditors, the report said the bondholders of Cruzeiro do Sul included Goldman Sachs Group Inc and UBS AG Zurich and UBS Financial Services Inc.

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