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Ambipar sees irregularities in swap operations by ex-CFO

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Firm faces cash crunch as creditors seek early repayment

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Shares down about 30% on Tuesday, 96% so far this year

(Adds several new paragraphs with information on Ambipar´s

former CFO and the company´s swap operations. Also includes

global context and information about corporate debt concerns.)

By Luciana Magalhaes, Ananya Palyekar and Manya Saini

SAO PAULO, Oct 21 (Reuters) -

Brazilian waste management company Ambipar filed

for bankruptcy protection late on Monday, citing signs of

irregular activity involving a former senior executive, in a

move that added to concerns running through corporate debt

markets.

Ambipar made its bankruptcy filing in a Rio de Janeiro court

and its U.S.-listed subsidiary Ambipar Emergency Response ( AMBI )

, filed for Chapter 11 protection in Texas, according to

a regulatory document made public early on Tuesday.

Ambipar said it made the filings after the "discovery of

evidence of irregularities in the contracting of swap operations

by the Finance Department and the abrupt resignation of the

former Chief Financial Officer."

Ambipar's former CFO João de Arruda resigned last month,

after serving just over a year in the role. While he was in the

role, Ambipar said swap contracts "were transferred from Bank of

America to Deutsche Bank and subsequently amended, with the

inclusion of a new rule that introduced a speculative element."

Arruda's attorney did not immediately respond to a

request for comment.

Ambipar's bankruptcy filing adds to corporate debt

troubles

rattling the market

in recent weeks, led by the bankruptcies of auto parts

retailer

First Brands

and subprime lender

Tricolor

.

While several analysts have described the cases as

idiosyncratic and stemming from lapses in risk controls,

investor sentiment has been fragile.

JPMorgan Chase ( JPM ) CEO Jamie Dimon said last week

that there are likely

more "cockroaches" in the credit market

in reference to the auto bankruptcies, and cautioned that

more troubles may emerge ahead.

Pressure on Brazilian firms has been intensified by some

of the world's highest interest rates, with the central bank

holding its benchmark rate at 15% amid growing fiscal concerns.

Ambipar said its bankruptcy protection became urgently

necessary after Deutsche Bank requested more loan

guarantees, prompting other creditors to seek early repayment.

According to Monday's filing, the Bank of New York

Mellon ( BK ), acting as trustee for bondholders, has listed

unsecured claims of about $328 million tied to Ambipar's 2031

and 2033 green bonds.

Both Deutsche Bank and Bank of New York Mellon ( BK ) declined

to comment.

The waste management firm previously got an injunction

blocking creditors from demanding accelerated payment.

The company had already said such demands could open a

"financial hole of more than 10 billion reais" ($1.85 billion),

as one creditor demanding immediate repayment could set off a

domino effect.

Ambipar, whose stock has lost nearly 96% of its value so

far this year, was removed from all indexes of Sao Paulo stock

exchange operator B3 this month, due to governance issues. On

Tuesday, the stock was down around 30% in Brazil.

The company, which had been pursuing international

expansion, has struggled to integrate newly acquired assets and

manage its growing financial complexity amid management

turnover, UBS analysts said in a late September report.

"After years of expansion through more than 70 M&A

transactions and growing financial complexity, recent events

have exposed weaknesses in governance and balance sheet

strength," UBS then said.

According to the bank, as of 2023, 57% of Ambipar's net

revenue came from Brazil, 15% from the rest of Latin America,

25% from North America and 3% from Europe.