Flash Fixed Income Report /
Brazil

Odebrecht seeks bankruptcy protection, excludes subsidiaries

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    18 June 2019
    Published by

    The Brazilian bankruptcy court in Sao Paulo today accepted Odebrecht's bankruptcy protection filing, which was submitted yesterday by the holding company. According to reports, the filing did not include its subsidiaries Braskem SA, Odebrecht Engenharia e Construcao or OEC (guarantor of Odebrecht Finance bonds ODBR), Ocyan SA (the holding's offshore drilling company), Odebrecht Transport SA (OR), and Enseada Industria Naval SA.

    Odebrecht is seeking to restructure cUS$13bn in debt. In addition to this, the holding has inter-company loans and other debt totalling cUS$25bn, making it Latin America’s largest corporate bankruptcy filing in history.

    The filing was prompted by the bankruptcy of the holding’s ethanol subsidiary Atvos SA, which guarantees cBRL11bn in bank loans, and the subsequent action by local bank Caixa Economica Federal with which the holding has an estimated BRL6bn in debt. Caixa had filed a complaint asking the holding company to accelerate debt payments by triggering Atvos’s cross-default clause, while arguing that the debt with Caixa was at a disadvantage to that of other creditors that had collateral attached to their loans, such as shares in Braskem.

    We still have a Sell on the ODBR bonds (cUS$3bn). As we have stated in previous reports, we do not discount the possibility that recovery for ODBR bond holders could very well be zero as the construction company continues to struggle to add new projects to its backlog, continues to burn cash at an estimated rate of cUS$200mn per quarter, and as it faces fines related to the Car Wash (Lava Jato) corruption scandal. In addition, in the absence of assets owned by the construction company, we would not be surprised if there is, in fact, no recovery, as has been the case with other construction companies with no major assets to liquidate or monetise.