OEC bondholders want adjustments to restructuring proposal; lack of guarantees remains an issue
10 April 2019 | 23:14 BST
Odebrecht Engenharia e Construcao (OEC) bondholders consider the debt restructuring proposal that the Brazilian company presented this week insufficient, due to the lack of guarantees, according to a source close to and a source familiar with the matter. The ad hoc group of holders is analyzing the proposal and expects to submit some adjustments by next week, a second source close said.
On 8 April, OEC representatives held a meeting in New York to present the details of the debt restructuring proposal to bondholders and their financial advisors, as reported.
The proposal includes the restructuring of the seven international bonds issued by Odebrecht Finance, representing USD 2.94bn. The group has been proposing a 75% haircut, the second source said.
The remaining debt would be converted into a new profit-sharing bond, a BRL-denominated bond that gives holders the right to receive a payment related to future results of the whole group – including dividends distributed by petrochemical producer Braskem (BBB-/Ba1/BBB-). The proposal also involves a five-year grace period.
There is not any guarantee or collateral on these domestic bonds, however, the three sources emphasized.
Bondholders want OEC to provide some kind of guarantee to those bonds, and a lower haircut, the source familiar said. It will be very difficult to approve a debt restructuring plan with a 70% haircut without any guarantees, the same source said, noting that “a 50% haircut on the bond would be more acceptable.”
Bondholders had been expecting a haircut of 50%-70%, according to the first source. OEC’s bonds with a longer maturity trade between 13 and 19.
“They will probably ask for some changes to the proposal, but the negotiation is expected to progress,” a third source close said.
On 27 February, the ad hoc bondholder group presented a restructuring proposal to OEC included no haircut, a four-year maturity extension, and interest paid in-kind through 2021. The group represents 40% of the Brazilian construction firm’s bonds and is composed of four asset management firms Gramercy, Alliance Bernstein, BlackRock and Fidelity, as reported.
The bondholder proposal also asked for guarantees from Odebrecht SA and liens on certain assets, including shares of Braskem. However, Braskem shares were given as guarantees for bank loans, and Odebrecht would need to obtain approval from the lenders, which are unlikely to agree to share their guarantees, as reported.
The details of the profit-sharing bond will be fully disclosed in the next few weeks, a fourth source close to the matter said. Although there is no guarantee linked to them, they would have access to a lot of potential receivables from the whole group, the source said, “and this reduces risks.”
This kind of profit-sharing bond was the way the group found to reduce risks to bondholders, as there are no guarantees to be offered to holders, the second source said.
If the company reaches an agreement with the ad hoc bondholder group, an extrajudicial proceeding is considered the most likely scenario for the restructuring, as reported.
In a Brazilian extrajudicial bankruptcy request, a restructuring proposal is developed by the company and presented to creditors. The company may prepare a plan for only one type of creditor, such as bondholders. A standard in-court bankruptcy protection request requires the approval of all four recognized creditor types.
However, in an extrajudicial process, the company needs to obtain the approval of at least 60% of the creditors affected by the plan, regardless of class.
“It will be very difficult for the company to obtain the support of this percentage of bondholders if it does not make any changes to its restructuring proposal,” the source familiar said.
OEC has been struggling to increase its backlog. The builder finished 1H18 with a backlog of USD 9.84bn, a drop of 18.9% compared to the backlog of USD 12.13bn at 4Q17, as reported.
The issuance of participative securities was used in the restructuring of the Odebrecht Oil and Gas (OOG), the oil and gas arm of the Odebrecht SA group, now known as Ocyan, as reported.
The OEC bondholder group has retained law firms Pinheiro Neto Advogados and Davis Polk, and financial advisor Rothschild.
OEC is working with Moelis & Company as financial advisor and Cleary Gottlieb as its international law firm, and E.Munhoz Advogados is acting as the local legal advisor, as reported.