Daphne Firth is a co-founder and CEO of Solutiona Investimentos e Consultoria Ltda in São Paulo, Brazil. Solutiona is a master servicer of nonperforming loans (NPLs) in Brazil, specializing in the management of corporate middle-market secured loans. Firth oversees all aspects of the firm’s operations, including new business development, compliance, operating budgets, portfolio objectives, innovative acquisition structures, and portfolio acquisition pricing.
Before her move to Brazil, Firth was managing partner with Woodside Capital Management in the greater Boston area. She is a former president of the TMA Northeast Chapter.
Q: How did you end up working in Brazil?
Firth: Woodside’s NPL investment business was beginning to get more and more competitive. We were finding it increasingly difficult to find opportunities where we felt the pricing justified the risk.
I was thinking about how we could change to respond to the market, etc., and as president of the TMA Northeast Chapter, I went to the TMA Annual convention. As I usually do when I go to conventions, I looked up the list of attendees to see who I might want to meet and who I might want to catch up with, and the president of TMA Brazil at the time, Leonardo Morato, was on the list. When I was in college I spent a semester at the University of São Paulo, so I decided to reach out to him and welcome him to the U.S. Because I speak Portuguese, I thought it would be nice for him to have someone he could speak his native language with.
I did that, and I ended up spending quite a bit of time with him. He convinced me to start looking at the Brazilian NPL market. I scheduled two or three trips to Brazil over the next year or so, doing research, meeting with lawyers and consultants, restructuring professionals, and workout guys at Brazilian banks to really try to understand their NPL market.
In the process, at another TMA event, of course, I met Rodrigo Santoro, who is the owner and entrepreneur behind the SuperBid group. He was in the U.S. to network with investors and understand their level of interest in investing in NPLs in Brazil. Over the ensuing year and a half, we had numerous conversations, and we ended up developing a high regard for each other. We shared a similar entrepreneurial drive to create something new and innovative in Brazil. He offered me an opportunity to go to Brazil to help manage the portfolio of NPLs that he had already purchased and to grow the master servicer platform.
Q: Is this a long-term project?
Firth: I’ve been in Brazil for about 18 months. The idea is to build the platform to a point that I can transition it to a successor, who could be Brazilian or possibly a foreign distressed investor looking for a local NPL asset management platform. I don’t want to live in Brazil for the rest of my life. But I definitely have this entrepreneurial side of me that got really excited about helping Rodrigo create a unique NPL platform in Brazil. He’s a very entrepreneurial person and 15 years ago left his uncle’s auction business to start SuperBid at a time when online auctions were in their infancy. So I think it was the entrepreneurial aspect of the opportunity that really got me excited.
Q: Let’s go back a bit further. How did you gravitate into the turnaround and restructuring space in the first place?
Firth: I started my career at Bank of Boston and spent about 10 years in one of their lending divisions that focused on managing relationships with multinational companies. At the end of that time, I was transferred to the workout department at the Bank of Boston, and I spent about five years working in the restructuring area there, managing Chapter 11 cases and other restructuring cases, and in some instances liquidations.
I got excited about the ability to really impact the results of both the bank and the potential company in the restructuring arena. Unlike other areas of the bank, where you had to go through credit approval processes and lots of bureaucracy, the workout area could make decisions on its own with very little bureaucracy and on a very timely basis due to the sensitivity of relationships with struggling companies.
Ultimately I left the bank in 1993, again for more independence and a more entrepreneurial focus. I left and started essentially my own operation to invest in NPLs. The Bank of Boston actually invested in the first transaction that I did, so they were very supportive when I left the bank.
Q: What have been some of your favorite or most gratifying investments or transactions along the way?
Firth: We, together with Lehman Brothers, bid on a pool of $300 million to $500 million of nonperforming loans in 2001. Lehman Brothers bid on all of the larger liquid traded loans, and Woodside bid on the illiquid smaller middle-market loans because that is the focus of Woodside’s business. We combined our pricing and put the bid in together.
Coincidentally, we put the bid in on September 10, 2001, at about 10 that night. We all know what happened on September 11. In fact, our banker from Lehman Brothers went in late that day because we had been up so late working on the bid. He never got into the office, which was right next to the World Trade Center.
Lehman Brothers essentially decided to pull its bid because of all the turmoil involving not only what was going on in the market after 9/11 but also just physically what happened to their operation in downtown New York. The selling bank called us and said, “We like your pricing, and we want to try to do a transaction with you.” We took a couple of big breaths. We reviewed the portfolio companies and told the seller that we really couldn’t hold our bid on one of them because it was so tied to the airline industry. I think we adjusted the price on one more and said, “We are ready to move forward.”
I’ll never forget, when we went through our board approval process for this purchase, a number of our board members were very nervous. “We don’t know what’s going to happen after 9/11. The market has tanked.” All of those kinds of negative feelings. One of the guys on our board said, “If we are in the business of investing in nonperforming loans and we believe the pricing is fair, then we should do this deal.” And it was the best deal we ever did. I don’t think we would have done it if we didn’t have that one person—it was Harold Kotler—supporting the investment decision to follow through on a business that you believe in deeply in an environment that was somewhat uncertain.
Q: You have to take the Warren Buffet long view on the market at a time like that, right?
Firth: Right, and our investors made the decision to invest in middle-market nonperforming loans when they committed to our fund. Our job was to put that money to work in that market. That’s what we did, and we never looked back.
Interestingly, the environment in Brazil today is not that much different than it was back then in the U.S. after 9/11. You also have to have the long view. They’re going through the deepest recession that they’ve had since the 1920s or ‘30s, three years of recession and a lot of uncertainty, and the NPL market in Brazil is very incipient. It’s not a liquid market. It’s really just beginning to develop. To have the opportunity to participate and build a platform with the local expertise of Superbid in that environment is a really great challenge for me.
Q: You talked a little bit about it earlier, but what role has your TMA membership played in your career?
Firth: It’s been really critical in my career in a number of different ways. I was at Bank of Boston in the restructuring department in the early ‘90s, when TMA in the Northeast was just beginning. I was a member back then. I participated in meetings, and it was a great community from which to exchange ideas and get thoughtful advice and, frankly, to get career advice. I think with TMA, like many associations, you only get out of it what you put into it. When I started Woodside with my partner Scott Schooley, I came back into the fold, if you will, and got very much involved with TMA.
I can’t tell you how many times opportunities came to me because of my involvement in TMA—investment opportunities, transactions that I was able to do with TMA members. And ultimately, being involved on the board and becoming president of TMA Northeast for a year were all experiences that I think helped develop my entrepreneurial side and leadership skills, but they also gave me the opportunity to meet other people who definitely influenced me along the way. Sheila Smith was one of those people. She was the person who organized the event where I ended up meeting Rodrigo Santoro and ultimately getting this opportunity to work on this project in Brazil.
I’m involved in TMA Brazil as well, which has been really interesting. The membership there is very different than the membership in the Northeast Chapter. It’s much more oriented toward turnaround consultants and lawyers, and there are very few investors and bankers involved at the moment. Hopefully we can bring some of those constituents in over the next year or two.
Q: How’s the Brazil Chapter doing?
Firth: I think it’s doing well. They have about 400 members. Clearly São Paulo is the center of the business community there. I would say most of the programs are in São Paulo, although they are organizing programs outside of the city. Given the environment there, TMA is a great resource for a variety of different constituents, as well as for the Brazilian government in terms of efforts to change the bankruptcy laws to make it easier for companies to successfully restructure.
Q: What advice would you have for someone who was new to the industry or was looking to get into the industry?
Firth: I would say to learn all you can from the people around you. Clearly TMA gives you significant opportunities to do that. Speaking specifically about distressed investing, I think that having a background in credit and some form of formal credit training, either through banks or investment banks, is a huge help. But again, I think for anyone entering any new career field, my advice is to reach out to as many experienced professionals as you can and do what you can to learn from them.
Q: If you could start your owncareer over would you do anything differently?
Firth: I don’t think so. I think that most people, as they grow throughout their careers, have challenges and really great moments, and I think it’s the combination of both of those that really make people who they are. I’ve had challenges and really great opportunities over my career, and to some extent I think the challenges have really made me who I am.
Q: The challenges probably set you up for some of those opportunities down the road.
Firth: Exactly. I would say if there was one piece of advice I would give to more junior people in the industry, it would be don’t be afraid to take a risk. If you have some self-confidence, even if you take a risk and it doesn’t work out, it’s not the end of the world. You can make adjustments and you can make changes. But to not take that risk can sometimes end up with a person regretting not doing it because they don’t know what could have happened.
Q: That’s true. So, what about outside the office? What would people who only know you professionally be most surprised to learn about you?
Firth: I really like adventure travel. Despite the fact that my husband does not like adventure travel, I’ve been really lucky to have other friends and family members who enjoy it and have been willing to share in that with me. I climbed Mount Kilimanjaro with my business partner Scott Schooley about
10 years ago. That was a great experience. It was followed by a safari, which was “much more comfortable,” with my family afterwards.
Then I took a one-week adventure trip deep into the Amazon jungle with my daughter, where we stayed on what was basically a floating inn. That was just amazing, seeing the wildlife, and we went into a couple of Amazon communities. These communities are literally totally isolated and only have 50 or 60 people. I also did a hiking trip in Patagonia with my daughter.
Q: What surprised you most about the Amazon?
Firth: Probably the most surprising thing about the Amazon was how hot it was. I have never been in a place as hot as the Amazon. We literally did nothing between 11 a.m. and 3 p.m., other than lunch, because it was so hot that you really couldn’t go out and do anything. It was amazing, the simple life that the people of the Amazon live and the nature—the alligators and the pink dolphins and the number of different birds you see. It was a great experience. Because this inn was on the river, we had caiman, their alligators, swimming underneath the docks where we were staying.
Q: Did you plant the adventure travel bug pretty deeply in your daughter?
Firth: No doubt about it. The apple doesn’t fall far from the tree. She’s actually been in New Zealand for the past year or so running horseback riding tours in Queenstown. She definitely got that bug, probably much to her father’s distress. I think her father would much rather she was in an office working over spreadsheets.
Q: Is there anything you’d like to add?
Firth: I’ve been really lucky. I have never considered my work to be work because I loved it, and I still do love it. To have the opportunity to make money doing something you love is not something you find every day. That’s so important to living a full life. That’s really what restructuring did for me.
