Wednesday, 13 February 2013 (6 days ago) by Rachel Hall

The lawyers behind Celpa’s debt restructuring fought off a doubtful government and predatory rival investors to prove they could rescue the company from insolvency, but new regulation means it won’t be repeated. Rachel Hall takes a look at how the controversial deal came together

The government steps in

The fact that a whole state could face a blackout was a major concern for the federal government, so much so that it decided to step in – rushing out a provisory law aimed at preventing an interruption to essential public services. On 29 August, two days prior to Celpa’s general meeting with its creditors, the government introduced new legislation that stopped public utility concessionaires from undergoing judicial restructuring proceedings. Armed with the new rules, ANEEL attempted to intervene and halt Celpa’s restructuring process. “It was a dramatic moment, we didn’t know how to proceed,” recalls Munhoz.

The lawyers are adamant that there was no need for government intervention. “The group had high debt levels, which was a manageable situation which could be dealt with through market tools, but the government was unsure about how long it would take,” says Haddad. Felsberg says that it seemed the government thought that the restructuring risked “interfering with regulatory powers”.

In the end, the Pará bankruptcy court barred ANEEL’s move on grounds of unconstitutionality as the reorganisation was already in place. Felsberg lauds the role of the judge, Maria Filomena De Almeida Buarque, in protecting Celpa, and “making sure that everyone had the right incentives to close the deal as soon as possible to preserve the value of the company and continue its services”.

The ruling paved the way for the judicial restructuring plan, drafted by Felsberg in association with the creditors, to be presented for approval as planned at a general meeting of creditors held on 1 September before the bankruptcy court of Pará, held in its capital city of Belém. In searching for an agreement on how to rescue the beleaguered company, the meeting stretched from 9 in the morning, past its 6pm deadline and into the evening before an audience of some 500 individuals, including – unusually – a judge and a public attorney. This was, Felsberg recalls, in spite of the court’s insistence that the meeting end at 6pm. “They said there was going to be a marriage... that had been a lie to get things moving,” he says.

Reaching an agreement within the tight time frame was further complicated by the number of creditors involved in the negotiations. The largest unsecured creditor constituency in the reorganisation process, an ad hoc committee of bondholders, was represented at the meeting by Bingham McCutchen LLP and Pinheiro Neto Advogados. Additionally, local bondholder Petrobrás Distribuidora, which held 164 million reais of Celpa’s debt and was advised by Machado, Meyer, Sendacz e Opice Advogados, was present. A role that, according to Machado Meyer partner Glaucia Mara Coelho, saw the firm seek to obtain recognition of the “special quality” of Petrobrás’ credit, owing to the fact that it is fuel supplier to Celpa, and consequently the size of its credit was increasing on a daily basis. The Bank of America Merrill Lynch, holder of a credit from a derivatives transaction, was also involved, represented at the meeting by its legal counsel TozziniFreire Advogados, which voted on the bank’s behalf.

The Inter-American Development Bank, a secured lender holding US$55 million worth of Celpa’s credits, meanwhile was advised behind a Chinese wall by a separate Pinheiro Neto team. The two teams were enlisted to avoid any conflict of interest between the IADB, which was a secured creditor, and the other bondholders, which were unsecured. “Generally speaking they all have the same interest in maximising value but occasionally you might have situations in which a potential conflict could arise,” explains Pinheiro Neto partner Giuliano Colombo.

Colombo says his role involved multiple levels of negotiation, coordinating the talks among creditors, between the creditors and Celpa, and finally between the creditors and Equatorial. “In the interim we had a lot of issues regarding voting rights of the bondholders, but we successfully secured their rights to vote on the plan in Belém and then Pará,” explains Colombo, adding that his firm’s work entailed some litigation over the disclosure of information required for the creditors to take an informed decision.

Although some creditors were reluctant to assist in the restructuring, eventually they were persuaded through litigation to put down their arms on the basis that if the company were to have gone bankrupt the consequences would have been far worse.

After long hours of negotiations, a yes vote was obtained from the majority of creditors. The bankruptcy court approved and confirmed the plan on the same day, and agreed that an investor, which would inject at least US$300 million into the company, was allowed to participate in the restructuring - enter Equatorial.

Counsel to Petrobrás Distribuidora

Machado, Meyer, Sendacz e Opice Advogados

Partner Gláucia Mara Coelho and associate Renata Martins de Oliveira in São Paulo

Counsel to the Inter-American Development Bank

Machado, Meyer, Sendacz e Opice Advogados

Partners José Prado and Renato Maggio, and associate Raphael Zono in São Paulo

Pinheiro Neto Advogados

Partner Luiz Fernando Valente de Paiva and associate Joana Bontempo in São Paulo

(Latin Lawyer 13.02.2013)

(Notícia na Íntegra)