45182 - DARP SA Cerberus

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Summary of Investment Information

Project Number

45182

Company Name

CERBERUS EMERGING MARKET SPECIAL SITUATIONS FUND I, L.P.

Date SPI Disclosed

Jun 1, 2021

Country

Latin America and the Caribbean Region

Region

Latin America and the Caribbean

Projected Board Date

Sep 15, 2021

Environmental Category

FI-2 - Limited

Status

Hold

Last Updated Date

Mar 2, 2024

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : Mar 15, 2022

Sector

Distressed Assets SPV

Project Description

The proposed project entails investing in Cerberus Emerging Market Special Situations Fund, L.P. (the Fund), a fund managed by Cerberus Capital Management, L.P. (Cerberus or the Manager). The Fund will invest in credit opportunities in Emerging Markets, primarily targeting stressed/distressed companies, with focus on Latin America and Caribbean (the Project).

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	100.0

Development Impact

- Stakeholders impact: The Project will support the acquisition and resolution of NPLs by allowing financial institutions to offload distressed assets. In turn, this helps them to release capital, decrease liquidity needs, and reduce their costs associated with the management of these assets. As a result, this will enhance the capacity of these financial institutions to increase lending. It will also help debtors to normalize their defaulted obligations, regain access to credit, and return to actively participate in the financial system. Lastly, the Project will support stress/distress small and medium sized enterprises (SMEs) and corporates by providing credit and the much-needed liquidity to improve their financial health, continue their operations, and ultimately preserve jobs. - Market impact: The Project will contribute to further develop the Latin American distressed asset space especially in Brazil, Colombia, and Mexico. The Project will likely generate a positive demonstration effect by fostering the participation of more players to the region, which is critical to create a vibrant, well-functioning and efficient environment for distressed investing.

IFC's additionality in the Project comes in three forms: (i) financing structure: IFC's investment provide necessary capital available for a LAC-focused fund to invest in NPL and single distressed assets in the region, particularly at a time when a rise in distressed assets is expected vis-a-vis the COVID-19 pandemic aftermath; (ii) resource mobilization: IFC's participation plays a critical role in mobilizing additional US$400 million from private investors to invest in distressed assets in LAC; and (iii) standard setting: IFC's support and guidance to Cerberus over the adoption of environmental and social (E&S) standards in line with the IFC Performance Standards to be embedded in their distressed assets resolution practices.

E&S Category Rationale / Risks and Mitigation

The Project consists of an IFC investment of up to US$100 million in the Fund and has been classified as Category FI-2 according to the IFC's Sustainability Framework. The Fund will invest primarily in LAC, targeting credit opportunities in different asset types such as NPL pools, senior and subordinated debt lending, real estate backed transactions and corporate credits. The Fund will be sector agnostic and potentially have exposure to individuals, SMEs, as well as in single assets corporate financing. To limit the E&S risks of the Project, coal related activities, high risks Category A transactions, oil & gas upstream opportunities and blind pools of corporate NPLs will not be eligible. The E&S risks of the activities supported will therefore range from low to medium.

The E&S risks related to the Project derive from the Fund's capacity to manage such risks, including its ability to screen out high risk investments as well as to improve the E&S performance of corporate projects. The main E&S risks of the supported sub-projects are expected to be of a medium nature and potentially related to labor and working conditions and pollution prevention risks. Cerberus has a global environmental, social and governance (ESG) policy focused on Governance related practices, but also including procedures to review alignment with national E&S regulations and a questionnaire to assess main E&S risks.

Summary of Client Environmental and Social Management System (ESMS)

As part of the Project, Cerberus will be required to develop an environmental and social management system (ESMS) for the Fund, in line with the IFC Exclusion List, National E&S laws and regulations and the IFC Performance Standards as applicable. However, depending on the nature of the assets the Fund invests in, leverage to enforce the application of some of these requirements may be limited. To mitigate this, E&S assessments of individual companies will be improved as part of this Project so that the Fund can exclude assets with significant E&S risks. Category A sub-projects, as well as medium E&S risks transactions with Community Health, Safety and Security risks where Cerberus have limited leverage to implement corrective action plans, will not be eligible. Cerberus will also be required to: (i) nominate a dedicated E&S officer for the EM Fund; (ii) provide training; (iii) implement an External Communication Mechanism (ECM); (iv) submit the first three E&S Due Diligences conducted prior to investment in corporate assets, and (v) provide a periodic report to IFC.

Contacts

For Inquiries About the Project, Contact

Cerberus Capital Management, L.P.
Kenneth A. Fahrman
Managing Director
646-885-3651
kfahrman@cerberus.com
875 Third Avenue, New York, New York, 10022
www.cerberus.com

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IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

For IFC projects that are active or under consideration, individual(s), or their authorized representative(s), who allege they have been or will be adversely affected by E&S risks or impacts arising from IFC's clients' business activities, may submit a complaint to IFC directly for consideration. When receiving an E&S complaint, IFC engages with complainants and works with its clients to find solutions to E&S concerns as quickly and efficiently as possible.

Complaints can be submitted to IFC online at www.ifc.org/escomplaints or by email to EScomplaints@ifc.org.

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Affected communities have unrestricted access to the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for IFC and MIGA. CAO facilitates the resolution of complaints related to IFC and MIGA projects and sub-projects, undertakes reviews of IFC’s and MIGA’s environmental and social compliance, fosters public accountability for their commitments, and enhances the environmental and social performance of IFC and MIGA.

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CAO receives and addresses complaints in accordance with the CAO Policy, which can be accessed at: https://www.cao-ombudsman.org/policies-guidelines.

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 E&S officer	10/15/2021
ESMS development	10/15/2021
Implement an External Communication Mechanism applicable to the Fund	10/15/2021
Implement staff training	01/13/2022

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