Odebrecht Speeds up Negotiations With Creditors to Finalize Judicial Reorganization

RIO DE JANEIRO, BRAZIL – Amidst the judicial attack by Caixa, which this week filed for Odebrecht’s bankruptcy, the group from Bahia has intensified negotiations with creditors in an attempt to finalize the judicial reorganization plan.

The talks mainly focus on the sale of Braskem‘s petrochemical company and the restructuring of Atvos – Odebrecht’s sugar and ethanol branch – also under judicial reorganization. The solution further includes the outcome of the renegotiation of the group’s construction company’s debts.

According to the law, the company is required to hold the creditors’ meeting by November 18th, but the meeting is expected to be opened and then suspended – a common practice in judicial reorganization proceedings.

Sources state that even speeding up the pace of negotiations, a plan would only be finalized in December at best.

Under judicial reorganization since July 18th, with a debt of approximately R$100 billion, Odebrecht is trying to persuade creditors that it needs a global solution, involving all of the group’s businesses.

For this reason, the Atvos creditors’ meeting, scheduled for October 24th, should also be opened and suspended.

This is due to the fact that there is no point in solving the problems in isolation, says a source. But the proposal does not have the approval of all creditors, particularly when it includes non-operational assets.

In the disputes presented on Thursday – the deadline for including objections to the reorganization plan – the banks made it clear that they do not agree with a unified single reorganization plan, which could jeopardize creditors.

“To date, there is no justification from the group as to why it would be appropriate to combine in the same judicial reorganization procedure all the group’s non-operational companies, excluding from this procedure the operational companies,” questions the Caixa, in its bankruptcy petition.

Dividends

From the moment the company submitted a general recovery plan, pro forma only, negotiations with creditors started to move forward. On the table is a series of issues involving Odebrecht’s equity interest in Braskem–one involves the payment of dividends.

On Thursday, the petrochemical company approved the distribution of R$667.4 million to its shareholders. From this, Odebrecht will receive approximately R$253 million.

The amount should, in theory, pay off debts with the banks. But, according to the report, some creditors maintain that the group needs these resources to progress in the reorganization.

It is expected that institutions will agree to allow this amount to remain with the company to strengthen cash flow.

Assets for sale

In exchange for this permission, however, the secured creditors want the sale of Braskem in order to pay them. In addition, this sale must take place within a year, said a source linked to the negotiations. But there may be some flexibility in this period depending on the share price.

A source linked to the group states that the one-year period to sell is feasible, but needs to know when this period will start to be counted. A further point is defining where the sale value will go.

The negotiations, however, will be influenced by Caixa, which is in a legal dispute with Odebrecht. On Thursday, the institution petitioned the judicial reorganization judge to decree the group’s bankruptcy.

The justification for the petition is that the company has not yet submitted any consistent plan showing how it will reorganize and how it will pay creditors. According to an expert on the subject, as the company is within the judicial proceeding, the petition should not be granted by the judge.

The remaining creditor institutions, less forthcoming than Caixa, were also unhappy with Odebrecht’s plan. In Bradesco’s objections, the institution states that “the absurd form of payment proposed by the group to unsecured creditors must be challenged”.

According to the plan, these creditors will be paid through the underwriting of equity securities or other instruments issued by the group.

Source: Estado de S. Paulo.