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By Guillermo Parra-Bernal and Tatiana Bautzer
SAO PAULO, Dec 31 (Reuters) - Itaú Unibanco Holding SA, Brazil's No. 1 bank by market value, has agreed to pay Grupo BTG Pactual SA about 1.21 billion reais ($305 million) for a stake in a debt collection company and a pool of non-performing loans, in a last-minute bid that trumped a rival bid.
In a Thursday securities filing, Itaú said that it would pay 640 million reais for the 82 percent stake that BTG Pactual owned in Recovery do Brasil SA once the deal wins regulatory approval. Itaú also clinched the purchase of 70 percent of a 38 billion-real portfolio of bad loans managed by BTG Pactual for 570 million reais, in cash, the filing added.
BTG Pactual is rushing to sell assets to shore up cash holdings and restore client confidence in the wake of the arrest of founder André Esteves. BTG Pactual expected to fetch between 400 million reais and 1.2 billion reais from exiting Recovery, Latin America's biggest debt collector, sources said earlier this month.
The Recovery transaction was announced after an intense sale process that lasted about three weeks, two sources with direct knowledge of the deal said. Itaú placed a bid once exclusive talks between distressed asset firm Lone Star Funds and BTG Pactual expired on Monday, the first source said, asking for anonymity as terms of the deal remain confidential.
Reuters reported on Dec. 17 that Lone Star had started exclusive talks for the Recovery stake. The offer presented by Itaú, which advised Lone Star until exclusive talks ended, was 20 percent bigger than Lone Star's, the sources added.
Itaú did not have an immediate comment. Messages left for a Lone Star media executive in New York were not immediately returned. BTG Pactual declined to comment.
BTG Pactual said the Recovery stake and the loan portfolio represented about 0.2 percent of assets. The deal does not imply the assumption of Recovery's debt or give the right to tap the company's cash stash, the same filing added.
Several asset sales, including pools of loans and a stake in Brazil's largest hospital chain, as well as the obtainment of a emergency credit lifeline worth 1.6 billion reais from Brazil's deposit guarantee fund helped allay concern of a cash crunch at BTG Pactual.
As many as 23 firms had shown preliminary interest in Recovery, the second source said. Recovery, which is based in São Paulo, oversees about 50 billion reais in distressed debt loans and is a major buyer of toxic credit from Brazil's biggest financial institutions.
The World Bank's International Finance Corp and the company's founders from Argentina are the owners of the remaining stake in Recovery.
The purchase will help Itaú cement a leadership position in Brazil's thriving non-performing debt collection industry. Industry players estimate sales of toxic loans will rise 40 percent this year to more than 25 billion reais.
With unemployment spiking and inflation eroding disposable income, Brazilian households are defaulting on their loans at the fastest pace in six years. Toxic debt is also increasing for companies, which are succumbing to flagging sales and rising borrowing costs.
"Recovery's expertise in debt collection services will help Itaú Unibanco optimize operations, which, coupled with services rendered to third-parties, should result in great prospects for growth," Marcelo Kopel, Itaú's head of investor relations, was quoted as saying in the filing.
Taking advantage of that trend, Goldman Sachs Group Inc, Credit Suisse Group AG and Cerberus Capital Management LP are exploring ventures to invest in soured consumer and corporate loans, joining local companies to buy distressed credit assets.
Distressed debt companies acquire large portfolios of credit from a bank at a steep discount and then rework each loan individually, profiting after repackaging them into securities, taking over the collateral or restructuring them. For banks, bad-loan sales help them clean up their balance sheets in times of economic hardship.
$1 = 3.9593 Brazilian reais Additional reporting by Silvio Cascione; Editing by Chizu Nomiyama and W Simon