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Espirito Santo’s Rioforte Fails to Repay $1.2 Billion of Debt

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Rioforte Investments SA, a holding company in Portugal’s Espirito Santo group, failed to pay 847 million euros ($1.2 billion) of short-term debt, becoming the second company in the group to miss a payment.

Rioforte owes the money to Portugal Telecom SGPS SA, which said today the payment wasn’t made. Rioforte owns 49 percent of Espirito Santo Financial Group, which in turn holds 20 percent of Banco Espirito Santo SA, Portugal’s second-biggest bank by market value.

Investors are concerned that financial problems within the Espirito Santo group will spill into the bank and subordinated bondholders may be made to take losses in a rescue. Luxembourg-based Rioforte plans to file for creditor protection, a person familiar with the matter said yesterday, asking not to be identified because they’re not authorized to speak about it.

“This increases the risk that subordinated bondholders will get bailed in,” said Bill Blain, a strategist at brokerage Mint Partners Ltd. in London. “This is not good news for the bank.”

Banco Espirito Santo said last week it had exposure of 1.18 billion euros to companies in Grupo Espirito Santo through loans, securities and other items as of June 30. The lender said it’s waiting for the release of that group’s restructuring plan to assess any potential losses.

Banco Espirito Santo’s 7.125 percent subordinated bonds due November 2023 fell 9.5 cents on the euro yesterday to 70.3 cents, to yield 12.5 percent, data compiled by Bloomberg show. Its shares closed down 14.6 percent to 38 euro cents in Lisbon.

Global financial markets were roiled last week after a report that Espirito Santo International SA missed payments on commercial paper.

Article Credit: Bloomberg

Updated 5 Years ago

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Tags:     Rioforte Investments SA     Portugal’s Espirito Santo Group     Bill Blain     Mint Partners Ltd