49% Haircut May Be the Best First Victim Investors Can Hope For

Brazil’s collapsing currency has claimed its first victim: General Shopping Brasil SA bonds.

The mall operator is offering to buy back as much as $50 million worth of its senior debt for a fraction of the face value: 51 cents on the dollar if bondholders accept by Sept. 29 and 48 cents if they wait two weeks longer. While the deal comes with a heavy loss, many money managers are recommending investors take it because the Sao Paulo-based company may be heading for a bankruptcy filing. Already, General Shopping skipped a coupon payment due Sept. 20 on $150 million of subordinated bonds.

General Shopping isn’t the first company in trouble as Brazil’s economy heads for its longest recession since the Great Depression. But other defaults this year — including Ceagro Agricola Ltda and OAS SA– were linked to collapsing commodities prices or a sweeping corruption scandal that strangled financing and cut off business. General Shopping is facing a different problem: With the local currency collapsing and all its revenue in reais, the company is overwhelmed by its dollar debt.

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