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Credito Real Prepares Bankruptcy Filing After Bond Default

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(Bloomberg) -- Credito Real SAB, Mexico’s largest payroll lender, which fell into default earlier this year, is preparing a potential bankruptcy filing in the US as soon as this week, according to people with knowledge of the situation.

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The non-bank lender is looking to line up financing from existing creditors to help fund the bankruptcy process, said one of the people, who asked not to be identified because the talks are private.

The company has been working with creditors on a restructuring plan that would allow it to continue operating, after it failed to repay holders of a maturing Swiss franc bond. Authorities said they don’t see a contagion risk on Credito Real’s default to the country’s financial system. However, the bonds of other non-bank lenders like equipment leasing firm Unifin have sunk since Credito Real’s default.

The plans are not final and could change. A Chapter 11 filing is among the restructuring options that Credito Real is considering as it seeks to preserve value for its stakeholders, the company said in a filing Tuesday.

The firm focuses on payroll and small business loans, and has $1.9 billion in global notes out of total debt of MXN53.3b ($2.72 billion). Credito Real is Mexico’s second-biggest non bank lender, after Unifin.

Credito Real’s notes have sunk since April 2021, when the company disclosed revisions to its 2020 audited statement that showed a sharp increase in its portfolio of non-performing loans.

The revision came shortly after its rival Alpha Holding SA had disclosed a $200 million accounting error that sent its bonds plunging and shook investors’ confidence in Mexico’s lightly regulated non-bank lending industry.

(Adds company comment in paragraph four.)

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