“The Mexican market has been irrational” declared Sergio Camacho, the chief executive of Unifin Financiera SAB de CV

Sergio Camacho

Sergio Camacho, the chief executive of Unifin Financiera SAB de CV, was sick of the questions about the financial health of his firm, the largest shadow lender in Mexico, and he was out of patience.

Unifin was doing well, he blurted out and would grow its business and thrive. “The market has been irrational,” Camacho barked at one investor after cutting him off during the firm’s earnings call last month. “No matter what I do, they are not reacting to the fundamentals of the company.”

Just 17 days later, the equipment-leasing firm halted payments on its $2.4 billion in foreign bonds and told creditors it would initiate talks to restructure the terms of the debt. And in so doing, it unmasked the greatest of all the miscalculations and false hopes in the crisis that has ravaged the Mexican shadow lending business: That the troubles that arose a year ago at one firm, and then shortly thereafter at another, were contained and did not spell doom for the other dominant players in the industry.

The decision shocked investors and analysts who’d been allayed by reassurances from Unifin’s management and solid financial numbers, at least compared to other problematic non-bank lenders.

“To put it mildly, we are flabbergasted and feel blindsided” by Unifin, said Rafael Elias, the managing director of Latin American corporate-credit strategy at Banctrust & Co. in New York. “We asked the company specifically why they think that bond prices were dropping if there was any particular reason. Management told us that ‘the drop in the bonds is surely related to the general market conditions.’”

Unifin was officially declared in default late on Tuesday by S&P Global Ratings. Meantime, Fitch Ratings slashed the company’s score to C as a “default process has begun,” analysts wrote in a statement Wednesday.

Unifin joins Alpha Holding SA and Credito Real SAB in a financial collapse that’s all but wiped out a combined $5 billion of bonds. Any number of problems got the firms, and their bondholders, in trouble: Both Alpha and Credito Real scared investors by disclosing accounting problems. But in the end, the collapse was hastened by a sudden surge in interest rates in Mexico and the US, which further cut off the firms from the easy money they depended on.

Source: El Financiero

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