Mexico's Shadow Bank Collapse Wipes Out $5 Billion for Foreign Bondholders

Over the past 17 months, there have been numerous defaults marking a collapse in Mexico’s shadow bank or non-bank financial sector.
A year into the pandemic, Panton, who was then a debt strategist in New York for Stifel, Nicolaus & Co., had warned that the math underlying Crédito Real SAB de CV didn’t add up. Hedge funds and big banks had ignored him, instead backing the company, a rising star of Mexico’s shadow banking industry that borrowed cash from big-time foreign investors and cut smaller loans to low-income people and businesses.
However, a revision was done in which the microlender admitted that its bad-loan book was 82% larger than it originally disclosed—just the type of issue Panton had cautioned about.
The revision, combined with an accounting error revealed the same week by a smaller payroll lender called Alpha Holding SA de CV, (AlphaCredit), would eventually lead to the collapse of Mexico's alternative banking sector, a loss of nearly $5Bn for foreign bondholders, and a series of debt restructuring battles in the country's opaque courts, undermining investor confidence in Latin America's No. 2 economy.
Following this, Unifin, Mexico’s largest shadow lender, defaulted in August 2022—just weeks after its chief executive officer snapped at investors during an earnings call about how healthy the company was.
The future looks bleak for Mexico’s shadow lenders, according to Rafael Elias, a managing director for fixed income at BancTrust Investment Bank Ltd. The business depends on strong consumer spending, he says, which hasn’t recovered in Mexico since the pandemic.
For now, investors in AlphaCredit, Crédito Real, and Unifin are hoping for restructuring deals that will pay some portion of the outstanding debt balances on bonds trading for pennies on the dollar. But the process is already proving arduous, with ever-shifting corporate leadership and cases proceeding through both US and Mexican courts.

(Source: Bloomberg)