Petrochemical giant Braskem filed on Monday (24) for an out-of-court restructuring of US$ 11 billion in debt, the second largest process of its kind in Brazil's history, according to a Folha de S.Paulo report based on Bloomberg. The agreement, backed by about 39% of creditors, secures 90 more days of negotiations and heads off, for now, a filing for recuperação judicial, Brazil's court-supervised form of bankruptcy protection.
Collections against the company had already been suspended since June, when Braskem obtained a precautionary court order after talks on restructuring its debt stalled. The 60-day window granted at the time expired on Monday, prompting the company to formalize the out-of-court process, a mechanism in which a deal negotiated with part of the creditors is submitted for court approval and can be extended to the rest.
Petrobras at the center of negotiations
Despite the immediate relief, creditors and the controlling shareholders, the distressed-asset fund IG4 Capital Group and state-controlled oil company Petrobras, remain far apart on central points. The documents filed with the court include a commitment by the main shareholders, or third parties agreed by them, to inject fresh capital into the company, but the amount, structure and timeline of the operation remain undefined.
That is where Petrobras moves to the center of the process. According to people familiar with the discussions who spoke to Bloomberg, the state company has stepped up its role in the talks in recent weeks under heavy pressure from creditors, and the extent and terms of its support are among the most important open questions. Braskem's plan foresees the injection of new share capital after a so-called "relief period".
"We are basically in the same situation: no agreement between the company and bondholders," said Roger Horn, senior emerging markets strategist at Mariva Capital Markets. "We are under the protection of a 90-day out-of-court restructuring, instead of an extraordinary precautionary measure."
Exit from the Ibovespa
The effects of the crisis have already reached the stock market. Braskem left the Ibovespa and other B3 indices, such as IBrX, IBrX-50, Small Caps and ITAG, on Tuesday (25), after being classified under out-of-court restructuring, according to InfoMoney. The exclusion forces index-tracking funds to sell the shares, which tends to reduce automatic demand for the stock.
About US$ 7 billion of the total debt is concentrated among foreign bondholders, a group seen as one of the main challenges of the restructuring, according to InfoMoney. Negotiations with these international creditors are expected to take up much of the 90-day truce obtained by the petrochemical company.