International bondholders are considering taking legal action in Mexico to recover losses from non-bank lender Credito Real , four sources told Reuters, after the lender said earlier this month that several creditors had reached an agreement.
Credito Real CREAL.MX bonds have lost about 99% of their value since the company defaulted on a 170 million Swiss franc ($175.98 million) bond in February, kicking off a trade liquidation process.
Those affected, who are collectively owed some $2 billion, are in preliminary talks to join the lawsuit that was brought mostly by local minority shareholders, lawyer Teodoro von Harrsch said.
“We are talking with the bondholders to see if there is a (legal) way in which we can help, we are looking for common ground,” said von Harrsch, legal representative of those affected.
Messages seen by Reuters showed that several of those affected hoped to join the Mexican lawsuit. Russia-based Alfa Capital, which collectively owns $150m in Real Credit bonds, is among the plaintiffs, a fund representative told Reuters.
“It’s because of our image, we have to go to court and try,” said the same source who preferred not to be named.
Alessandro Revelant, a private investor from Italy, said he was also seeking legal action, as was Stan Bozhenkom, a Russian national. “In investing, you can lose money, that’s fine,” Revelant told Reuters. “When something like this happens it’s hard to accept,” he added.
Large groups such as British asset manager abrdn ABDN.L and Los Angeles-based DoubleLine Capital also hold bonds in the company, according to Refinitiv data.
The firms, Credito Real and external auditor Deloitte did not respond to Reuters requests for comment.
The company has publicly acknowledged that there were flaws in its accounting practices, telling the Wall Street Journal in July that there were “deficiencies (in) corporate governance.” The CEO and his team left their posts in April.
Credito Real has said it faces an investigation by securities regulators, but no criminal proceedings have been made public.
The decision to take legal action comes after the institution recently announced that it had reached debt agreements with banks such as Banorte, Banco Santander México, BBVA and Scotiabank.
Von Harrsch added that bondholders are still exploring their options but have not ruled out starting a civil case involving the company’s auditors or funding a criminal investigation into his management.
Bondholders, who along with other creditors have pressured Credito Real to pursue Chapter 11 proceedings in the United States, face an uphill battle as the most exposed group, Fitch ratings said on Tuesday.
“As most global bonds are unsecured, global bondholders are expected to face the greatest losses from defaults…while hybrid security holders face the greatest risk in terms of recovery prospects,” said.
Credito Real filed in July to enter US Chapter 15 bankruptcy proceedings so that the case would remain in Mexico, while a Chapter 11 proceeding, as requested by the bondholders, would take place in the United States.
Mexico has seen the default of three publicly traded non-bank lenders in the span of a year, including firm Unifin.