Brazil’s largest private sector banking group said on Thursday that it had agreed to acquire the distressed debt unit of the troubled investment firm BTG Pactual for about 1.2 billion reais, or about $307 million.The banking group, Itau Unibanco, will acquire 82 percent of the distressed debt unit, Recovery do Brasil Consultoria, for 640 million reais and approximately 70 percent of the firm’s nonperforming loan portfolio for 570 million reais. The portfolios have a face value of 38 billion reais, the bank said in a filing. Both stakes correspond to BTG’s entire ownership of each.
The International Finance Corporation, the World Bank’s private investment arm, will retain its minority stakes in both the firm and the nonperforming loan portfolios.
The price was less than the 1.7 billion reais than BTG had sought, according to multiple people with knowledge of the negotiations. Some in the market thought BTG could have fetched the higher price if it had been more patient. That suggests that BTG continues to face pressure to demonstrate liquidity and good financial health after the arrest of its founder and former chief executive, André Esteves, on Nov. 25.
Mr. Esteves faces charges by Brazil’s attorney general of obstruction of justice and interfering with the broad investigation into corruption involving the state-owned oil giant Petrobras. Although he was released from jail on Dec. 17, he remains under 24-hour house arrest awaiting trial and cannot return to work at BTG. He has resigned as its chief executive and chairman of the board.
BTG’s stock fell by about half in the weeks after his arrest and was still trading near its low at around $15 a share on Thursday.
BTG continues to grapple with turning a corner. In a December research report, Goldman Sachs said that it expected the firm’s cumulative funding gap — as measured by assets versus liabilities — to reach 1.6 billion reais by the end of this year and widen to 11 billon reais by the end of next year.
In a respite, BTG obtained a line of credit of six billion reais this month from the private credit firm Fundo Garantidor de Créditos, which is funded by Brazilian banks.
Yet it continues to be on an aggressive campaign to sell assets, and Recovery was one of its most prized.
“They were putting a lot of pressure to get it done quickly,” one of the individuals with knowledge of the negotiations said of the speed of BTG’s sale of Recovery. That turned off some potential buyers, he said, as BTG “did not want folks to be able to check under the hood” before reaching an agreement.
If BTG had been more patient, that person said, BTG may have fetched as much as two billion reais for Recovery. “There was no reason to push for a close by the end of the year,” he said, other than demonstrating financial health in the calendar year.
Initially, Itau Unibanco was neither BTG’s preferred buyer nor the most likely candidate, according to several people who spoke on the condition of anonymity. BTG was close to reaching a deal this month with the American investment firm Lone Star Funds, according to two people.
Lone Star was widely seen to be the favorite as it had been talking to BTG well before the arrest of Mr. Esteves.
“Lone Star was the pretty obvious buyer from the beginning,” said one of the people, adding that, “I did not think anyone was ahead of them.”
Recovery was particularly attractive to foreign buyers because it allowed them a way to enter Brazil’s lucrative distressed debt market without having to build their own operation here.
Yet talks with Lone Star broke off last week for reasons BTG Pactual has yet to disclose. One individual said the two parties were apart on price by about approximately 300 million reais. Sam Loughlin, Lone Star Funds president of the Americas, did not respond to an email requesting comment.
Before these negotiations, more than 20 firms had expressed interest in Recovery. BTG gave a deadline of Dec. 16 for submitting nonbinding final offers.
Clint Kollar, a managing director with TPG Special Situations Partners, the dedicated credit platform of TPG Capital, met with BTG at its São Paulo headquarters this month, according to one person with knowledge of his plans.
The Fortress Investment Group showed interest until Dec. 16, but was told its bid would be too low, so it backed out. Although Fortress recently closed its macro funds, having faced huge losses in Brazil, according to an article in The Wall Street Journal in October, its credit business, which includes distressed and special situations, continues to have interest in Brazil.
Apollo Global Management had also taken interest in Recovery. Cerberus initially looked at it but balked at a price of more than one billion reais.
The terms of the deal with Itau are subject to regulatory approval.