The sugar and alcohol division of Latin America´s largest construction company, Odebrecht, has reached an agreement with its creditors to restructure some 11 billion reais (US$3.4 billion) of debt, one of the largest out-of-court restructurings to take place in Brazil and the culmination of almost a year of negotiations.

Odebrecht and its agricultural subsidiary worked with bankruptcy and insolvency boutique E Munhoz Advogados - the firm formed by ex-Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados partner Eduardo Secchi Munhoz last year. The company hired another firm, Motta, Fernandes Rocha - Advogados, as counsel for a new issuance of debt.

Odebrecht Agroindustrial´s creditors have agreed to supply the company with four billion reais (US$1.3 billion) of new credit by subscribing to new debentures issued by investment arm OSP Investimentos on 27 July. The funds raised from the debentures will be used to pay off part of Odebrecht Agroindustrial debts. More than 3 billion reais of debentures have already been paid for by Banco do Brasil, Banco Bradesco, Banco Itaú and Santander. Another creditor, Brazilian development bank BNDES, has agreed to subscribe to the remaining debentures. The five banks hold 90 per cent of Odebrecht Agroindustrial´s total debt.

Banco do Brasil, Banco Bradesco, Banco Itaú and Santander were all advised by Brazil´s Machado, Meyer, Sendacz e Opice Advogados. The same firm advised those banks in their role as underwriters to the new debentures.

Under the terms of a deal struck with creditors, the outstanding existing debt will repaid within 13 years, with Odebrecht not paying interest for five years. Although the banks´ credit used to carry different conditions, the restructuring means all Odebrecht Agroindustrial´s debt is now governed by the same terms.

Odebrecht managed to convince its creditors to subscribe to new debt by offering a lucrative collateral package. It includes a guarantee over shares Odebrecht owns in Braskem, the largest petrochemicals company in Latin America, and the group´s oil and gas subsidiary Odebrecht Serviços. Another factor helping it obtain the new credit line was a standstill agreement it reached with its creditors in November, whereby the banks agreed not to foreclose on the guarantees for the debt they were already owed. Munhoz says the standstill was crucial to making the banks comfortable enough to supply new financing, because it provided a guarantee that Odebrecht Agroindustrial?s restructuring would not end up in court.

Odebrecht began discussions with its creditors last October, when, according to Munhoz, the company was months away from defaulting on billions of reais worth of debt. "It was a very difficult situation," he says. "The challenge was how to negotiate gently with an important group of banks without one of them filing for legal action, which would have meant Odebrecht would have had to file for judicial reorganisation."

Renegotiating its debt outside of the courts was top on Odebrecht´s list, explains Munhoz, because the group contains a number of different companies that operate across the world. Odebrecht Agroindustrial filing for judicial reorganisation could have restricted other Odebrecht companies? access to credit, which the group wanted to avoid, he says. "We wanted to preserve more value than the judicial proceeding would allow," he sums up.

Throughout negotiations, the banks negotiated collectively with the debtor, which Munhoz says is unusual for distressed companies. "Odebrecht had talks with the banks as a group, rather than individually - if it had done that then it´s likely the company would have had to file [for judicial reorganisation]." Munhoz thinks Odebrecht´s size was an important factor in getting the banks to agree with the out-of-court solution it put forward. "It´s a big company and that gave Odebrecht more leverage and focused the case in a different way than ordinary cases, because from the beginning, we were able to present the banks with a credible strategy and make them believe we would have a real chance to succeed in an out-of-court environment."

In Brazil, the out-of-court route can be preferential to banks too, because judicial reorganisations can call on lenders to write off significant portions of what they are owed.

The deal sets a precedent for other distressed companies to pursue out of court arrangements to settle their debts. "We firmly believe companies and financial institutions should, in good faith, prioritise and put energy into reaching agreements with each other," says Luis Wielewicki of Motta Fernandes Rocha. "I am sure this will be an important precedent and model for future transactions of the same nature in the Brazilian market."

Odebrecht Group is seeking to renegotiate some 35 billion reais (US$9.83 billion) in debt as it suffers the fall-out from its involvement in Brazil´s largest ever corruption investigation. The company´s CEO, Marcelo Bahia Odebrecht, received a 19 year sentence for corruption and money laundering in April, after being implicated in the sprawling Operation Car Wash. That same month, the group revealed plans to sell 12 billion (US$3.4 billion) in assets to meet its debt obligations.

Counsel to Odebrecht

In-house counsel to Odebrecht Agroindustrial - Luciano Dequech and João Milton da Veiga Pereira

In-house counsel to Odebrecht - Helena da Costa Silveira

E. Munhoz Advogados

Partners Eduardo Secchi Munhoz and Laura Amaral Patella

Motta, Fernandes Rocha - Advogados

Partners Beatriz Trovo, Luis Wielewicki and Rodrigo Maia and associates Arthur Teixeira and Thaís Giarreta

Counsel to Banco do Brasil, Banco Bradesco, Banco Itaú and Santander Machado, Meyer, Sendacz e Opice Advogados Partners Adriano Schnur, José Prado, Renato Maggio, Renata Oliveira and Camilo Gerosa, and associates Paulo Markossian Nunes, Nuno Faria, Raphael Zono, Fernando Becker, Fernanda Cury Messias, Luiz Filipe Gentil Pedro, Mário Gomez, Renan Valverde, Lilian Harada and André Morett

(Latin Lawyer - 11.08.2016)

(Notícia na íntegra)