34882 - Darp SPV Chile

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Summary of Investment Information

Project Number

34882

Company Name

La Avanzada Fondo de Inversion Privado

Date SPI Disclosed

Mar 21, 2014

Country

Chile

Region

Latin America and the Caribbean

Projected Board Date

Apr 22, 2014

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Jun 12, 2021

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : May 13, 2014
Signed : Jun 12, 2014
Invested : Jun 16, 2014

Sector

Distressed Assets SPV

Project Description

The existence of a strong Distress Assets (“DA”) market constitutes an important element contributing to the appropriate performance of the financial industry in any economy. In this context, the proposed project is part of IFC’s program to promote the development of a DA market in Emerging Markets. To achieve this, the project team proposes partnering with an affiliate of Fortress Investment Group (“Fortress”), existing DARP partner in Asia, to create a Special Purpose Vehicle that would purchase, hold and manage non-performing loans (“NPLs”) portfolios acquired from different financial institutions in Chile.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	15.0
Equity	5.0

Development Impact

- Allow banks in Chile to offload their NPLs, and therefore improve their liquidity and capacity to originate new loans.
- Through the appropriate resolution of NPLs, the project could allow a large number of individuals to be able to avoid losing their assets (e.g., their homes) and ultimately to re-enter the banking system.
- The proposed investment would contribute to the further development of the distressed assets market in Emerging Markets, resulting in an increase of both the number of NPL transactions and the players in this market.

Liquidity: IFC would enable further private sector investment in the distressed assets sector, providing liquidity, which is scarce for these types of investments.
Market Support: The vast number of opportunities for distressed assets investments in the United States and Western Europe is significantly crowding out other regions, including Latin America. IFC''s participation in the project would send a strong signal to the market. This would significantly support the appropriate evolution of the regional distress assets market, and contribute to the stability of the financial industry.
Local Knowledge: IFC has been active in the region''s market and is familiar with the players and the regulatory environment, highly valued by the Sponsor, as this would be its first investment in distressed assets in the Country.

E&S Category Rationale / Risks and Mitigation

It is expected that the project involves a creation of a SPV in co-investment with Fortress to acquire non-performing and sub-NPL pools of assets in Chile. Based on the master servicer''s past experience, the SPV''s investments may range from pools of retail and SME NPLs and other distressed assets such as properties. We expect that the pools of assets will be serviced by by one or more experienced local companies. While the proportion of each type of investments is not known, the portfolio risks are considered to be overall medium with limited significant E&S risks, if any, thus the project has been classified as a Category FI-2 according to IFC’s Sustainability Framework.

The investments may include low E&S risk investments such as consumer loans, SMEs and potentially pools of mortgage loans. The main E&S risks and impacts of the project are expected to be associated to labor liabilities, environmental, health and safety accidents and license losses due to poor maintenance and inefficient risk management. The proposed master servicer for the initial investment does not currently have a formal Environmental and Social Management System (ESMS). Such proposed master servicer was found to be in compliance with the IFC Performance Standard 2: Labor and Working Conditions.

MITIGATION MEASURES

Task Description
Anticipated Completion Date
Nomination of the ESMS Officers
On or prior to Commitment
Establish an ESMS, including the detailed checklists and assignment of the ESMS implementation responsibilities
On or prior to Commitment
Submission of the few ESDD report to confirm the capacity of implementing the ESMS
Prior to the third investment and committee (IC) approval

Contacts

For Inquiries About the Project, Contact

Doug Thomas
Managing Director
Fortress Investment Group
One Market Street
Spear Tower, 42nd Floor
San Francisco, CA 94105
United States of America
Tel: +1-415-284-7400
Email: mailto:dthomas@fortress.com

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

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Task Title & Description	Anticipated Completion Date
Nominate officers	03/28/2014
Establish SEMS	03/28/2014
Staff Training	03/28/2014

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