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Odebrecht deals with US$4.5 billion debt in Brazil’s “largest ever” extrajudicial restructuring

Por: Latin LawyerImprimirVisualizar em PDF

An offshore oil drilling group owned by Brazilian conglomerate Odebrecht has entered into agreements with creditors to restructure its US$4.5 billion debt pile, and has signalled its intention to file for Chapter 15 recognition once the agreements receive court sanction.

On 23 May counsel to Odebrecht Óleo e Gás (OOG), São Paulo boutique E Munhoz Advogados, submitted three separate restructuring plans to Judge Paulo Assed Estefan in the Fourth Commercial Court of Rio de Janeiro, to finalise what they describe as "the biggest and most complex extrajudicial restructuring" to be completed in Brazil.

E Munhoz partner Ana Elisa Laquimia, who counselled OOG, tells Latin Lawyer's sister publication GRR that the court has granted a 30-business-day period for creditors to submit oppositions to the plans, as required in all extrajudicial restructuring proceedings under Brazil's bankruptcy law.

The 30-day period ends on 21 July, after which the company will be summoned to present responses to any oppositions filed, says Laquimia – and only after that period can the court ultimately approve the plans.

The company plans to file a Chapter 15 petition in the US to "seek a recognition order upon the approval of the plans by the Brazilian court", she adds.

The oil drilling group has been struggling to stay afloat since Odebrecht was engulfed in the "Lava Jato" investigation in Brazil, amid allegations of corruption pertaining to the state-controlled oil company, Petrobras.​

Over the last two years, Odebrecht has been forced to sell assets and negotiate anti-corruption settlements with Brazilian, US and Swiss prosecutors, in order to stay solvent.

OOG raised money through project bonds governed by New York law that were issued by Cayman subsidiaries, and secured by drilling units owned by Austria-based group entities. Those drilling units were contracted to Petrobras.

During the Lava Jato fallout, "Petrobras rescinded the contracts for one of the drill ships" explains Gabriel Buschinelli, also a partner at E Munhoz. He says the terms of the project bonds included an obligation for OOG "to look for a new contract".

Due to the trade conditions in the international oil market becoming unfavourable it was "not possible to find a new contract", Buschinelli explains. This, together with limitations to the reimbursement provisions of the existing notes, led to the formulation of the three restructuring plans.

Under the terms of the newly agreed plans, the New York law notes due in 2021 and 2022 will be exchanged for two new tranches of notes, one with the same original bonds' maturity, and the second maturing in 2026.

Corporate creditors of OOG, including Brazilian banks Banco Bradesco and Banco do Brazil, will also exchange existing debt for new perpetual participatory bonds that will allow them to receive a share of the company's dividend distributions.

Buschinelli says the plans were designed to allow the company to pay the bond debt by 2026, but should that not be possible, "the bondholders will remain with collateral over the assets".

The plans also ensure "alternative provisions" for letters of credit issuers, including Amsterdam-headquartered ING bank, says Buschinelli. They have agreed to issue new letters of credit or payment guarantees to secure the new tranches of notes.​

Odebrecht has also committed to pay more than 95 million reais (US$28.4 million) into OOG's books to ensure the economic health and viability of the oil driller after the restructuring.

Under the Brazilian bankruptcy law, the company was required to gain approval of the plans from creditors representing more than 60% of the total amount of the restructured claims.

It secured approval from almost 69% of the creditors, explains Buschinelli, after a "complex negotiation".

If the court approves the plans, it will bind all creditors, whether or not they are signatories, says Buchinelli. "This is a ground-breaking initiative," using a procedure that has rarely been used in Brazil, he says.

Despite it being labelled an "extrajudicial restructuring" under the law, the name is misleading, says Buschinelli "because it is technically a contract that has been made with 60% of the creditors that has now been submitted to the court – it is actually a judicial proceeding."

"From a Brazilian law perspective, this is an important case. It is the biggest amount ever subject to an extrajudicial restructuring, and the third biggest restructuring in Brazil's history" adds Buschinelli.

Last April, Odebrecht's CEO, Marcelo Bahia Odebrecht, received a 19-year sentence for corruption and money laundering – the same month in which the Odebrecht group announced plans to sell 12 billion reais (US$3.6 billion) of its assets to meet debt obligations.

Last July, E Munhoz reached a 11 billion reais (US$3.3 billion) deal with creditors in the restructuring of Odebrecht Agroindustrial – the group's sugar and alcohol division.

In the 4th Commercial Court of Rio de Janeiro

In re Odebrecht Óleo e Gás, et al

Judge Paulo Assed Estefan

 

Counsel to Odebrecht Óleo e Gás

E Munhoz Advogados - Partners Eduardo Munhoz, Gabriel Buschinelli and Ana Elisa Laquimia in São Paulo

Davis Polk & Wardwell LLP - Partner Manuel Garciadiaz, counsel Drew Glover and associates Rebecca Roman and Elliot de Carvalho in São Paulo

Stocche Forbes Advogados - Partners Frederico Moura and Renato Coelho, and associates Yves Dutra and Beatriz Mazzi in São Paulo

 

Counsel to the ad hoc group of bondholders

Cleary Gottlieb Steen & Hamilton LLP - Partner Francisco Cestero and associates Jonathan de Oliveria and Christina Chinloy in São Paulo

Pinheiro Neto Advogados - Partner Giuliano Colombo and associate Janaína Vaz in São Paulo

 

Counsel to Banco do Brasil and Banco Bradesco

Machado Meyer Advogados - Partners Adriano Schnur, Pedro Jardim, José Prado and Renata Oliveira, and associates Fernanda Piva Marcos Costa and Emily Oliveira in São Paulo

 

Counsel to Swiss Re International (payment guarantee issuer)

Clifford Chance LLP - Associates Bryony Theaker and Seema Shukla in London

Souza, Cescon, Barrieu & Flesch Advogados - Partner Fábio Rosas and associate Guilherme França in São Paulo

 

Counsel to ING Bank (credit issuer)

Santos Neto Advogados - Partners Fernando Ferreira and Gabriel Leutewiler in São Paulo

 

Counsel to Citibank

Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados - Partners Pablo Sorj and Alex Hatanaka, and associate Fernanda Corrêa 

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