November 27, 2018 / 9:54 PM / in a year

Brazil’s Odebrecht weighs restructuring options as bondholders brace for losses

NEW YORK, Nov 27 (LPC) - Cash-strapped Brazilian construction firm Odebrecht Engenharía e Construção (OEC) is analyzing options to restructure some US$3bn worth of bonds, after it missed a coupon payment this week that has bondholders prepping for significant losses on their investments.

OEC, implicated in a multinational corruption scandal that has impacted countries in Latin America and Africa, hired Moelis & Co and law firm Cleary Gottlieb Steen & Hamilton on Monday to study potential restructuring alternatives after the company said it would skip an US$11.5m coupon payment due on a bond maturing in 2025.

A spokesperson for Moelis declined to comment, while representatives for Cleary Gottlieb and Odebrecht did not respond to requests for comment before this article was published.

Possible solutions to address the bond debt include exchanging and extending maturities on OEC’s securities or rolling over shorter-term liabilities with bank loans, according to three sources monitoring the situation.

For the latter option, however, OEC would need strong support from parent company Odebrecht SA and to present banks and investors with assets, or construction contracts, that can be collateralized, the sources said.

The company said in a statement that the deferred coupon payment would preserve liquidity and better position OEC to recover a backlog of infrastructure projects and kick-start lagging cash generation.

But since Marcelo Odebrecht, the former chief executive officer of the Odebrecht Group, was found guilty in 2016 of funneling at least US$785.5m in bribes to politicians in return for construction contracts, investors are skeptical the company can obtain sufficient collateral to approach the market to restructure its debt.

Rafael Elias, a director at investment bank Exotix Capital, said OEC was “underestimating” how tainted its name had become as a result of the scandal and doubted the company could compete with its peers in the region.

“[The scandal] will weigh on anyone that sees an Odebrecht bid when it comes time to assign a project,” Elias said. “They have that albatross that is difficult to shake.”

Odebrecht in May did raise 2.6bn reais (US$670.3m) from five Brazilian banks to roll-over short-term OEC liabilities, but to do so, the company used its stake in local petrochemicals company Braskem as collateral.

Odebrecht holds 50.1% of voting capital in Braskem, and it is considered the “best asset” the company has left, said Marcos Schmidt, a senior analyst with Moody’s Investors Service.

But relying on Braskem again may not prove enough to convince banks to lend Odebrecht more money.

Schmidt said there was “not much else” for Odebrecht to use as collateral and expects bondholder losses to be “severe.”

While no concrete terms on a restructuring have been finalized, a distressed debt investor said OEC’s bondholders would be “lucky to get a fair recovery” and added that the company’s project pipeline would not be enough to restructure debt.

“Odebrecht has fought hard and they’ve serviced debt longer than I thought they would,” the emerging markets-focused investor said. “Unless the parent steps in to support, I cannot see how this could be a smooth restructuring.”

Despite its woes, OEC this week won a US$34.8m public tender to modernize the port of Miami and it is also working on the expansion of the Tocumen International Airport in Panamá City, Panamá. (Reporting by Aaron Weinman Editing by Michelle Sierra and Lynn Adler)

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