Brazil has an important space in the private equity market to be fulfilled by investors in countercyclical moments of the economy and/or in specific segments of industries in crisis. IG4 Capital seeks superior returns primarily through creative capital restructurings, conversions of debt into equity, partnering with banks and improving business operations. IG4 Capital does not underwrite investment opportunities based solely on Brazil growth, but rather seeks superior returns despite the macro economic environment. The core of the investment philosophy is predicated on entering into an investment opportunity at the right price and in partnership with banks and existing shareholders.
In July 2017, IG4 Capital executed the acquisition of Iguá Saneamento, formerly CAB Ambiental, via a complex and creative transaction. The transaction required the conversion of the controlling shareholder’s stake into passive quotas of a FIP (Fundo de Investimento em Participações), deleveraging of the company via the acquisition and conversion into equity of R$186 million of debt from Banco Bradesco, conversion of Banco Votorantim’s R$49 million of debt into a mandatorily convertible debenture, renegotiation of the terms and conditions of the remaining R$900 million of debt and a primary injection of R$70 million, also via the FIP. As a result of the transaction, IG4 Capital currently manages its first special situations fund (FIP IGUA – IG4 Capital Special Situations I), a R$410 million fund and is the controlling shareholder of Iguá Saneamento.
In 2012, while at GP Investments, Paulo Mattos and his team sourced, executed, managed and exited a very successful investment, BR Towers. BR Towers, a US$300 million investment by GP Investments together with GIC and Banco Bradesco BBI, was established via the acquisition of over 2,000 towers from Vivo, with long-term take-or-pay contracts. Subsequently, BR Towers acquired Site Sharing and an additional 2,200 towers from Oi. In addition to the equity investment, more than US$200 million in acquisition finance was raised from Banco Santander and Banco Bradesco. Paulo Mattos served as the company’s Chairman of the Board and was instrumental in the entire investment process. In late 2014, BR Towers was sold to American Tower Company, for approximately US$1 billion, resulting in returns of 72% IRR and 3.2x cash on cash in local currency.
Distressed Securities & Assets
While the Brazilian secondary credit market is still in its infancy stage, there are some interesting opportunities in high yield corporate debt, non-performing loans and over levered distressed assets, including real estate. IG4 Capital targets opportunities in which banks and other creditors seek an investor with a strategy to recover all or part of their debt.
A key component of the transaction included the negotiation and acquisition of R$186 million of non-performing loans from Banco Bradesco. IG4 Capital invested its partners’ proprietary capital to acquire the debt from Banco Bradesco, which was subsequently converted into equity at face value at CAB Ambiental, renamed to Iguá Saneamento.