Rio de Janeiro-based private credit firm Root Capital is rolling out a new distressed-debt fund, Special Situations IV, amid a surge in bankruptcy filings in Brazil as local companies struggle with mounting financial pressure and deteriorating credit conditions, according to a report by Bloomberg.
The report quotes Rafael Fritsch, Partner and Chief Investment Officer at Root Capital, as saying that: “We’re seeing continued stress in Brazil’s credit markets—companies are failing, the agribusiness sector is in crisis, and interest rates, which were expected to decline, are now rising again. This creates an urgent need for liquidity and opportunities in distressed assets.”
Root Capital aims to raise BRL500m ($91.3m) from domestic Brazilian investors this year, followed by an additional $100m from offshore investors next year, Fritsch explained.
Special Situations IV will focus on acquiring distressed corporate debt and legal claims from companies, as well as claims against governments at various levels, including states and municipalities. The fund will look to deploy capital over a two-year investment period, with an expected total duration of about four years, according to Fritsch.
While interest rates in markets such as the US, Europe, and Australia are beginning to ease, Brazil has entered a new monetary-tightening cycle, pushing interest rates up to 10.5%. This is exacerbating financial strain on Brazilian companies, leading to record bankruptcy protection filings with data from Serasa Experian showing a 72% increase in the years to the end of August compared withe same period last year.
