An overview of restructuring/distressed activity in Brazil last year by the Cleary Gottlieb LatAm restructuring team posted at Latin Lawyer – all major cases had significant government involvement.
“Brazil saw a more active restructuring market in 2012 with bankruptcy filings of a few highly leveraged issuers. Rede Energia, a distressed utilities holding company controlling eight power distribution entities throughout Brazil, filed for bankruptcy protection in November 2012 with a sale of the company expected to close in early 2013. Despite the successful transfer of former Rede subsidiary, Celpa, to the Brazilian utility company Equatorial Energia after its bankruptcy filing bankruptcy earlier last year, Rede continued to grapple with a quickly deteriorating financial structure. Meanwhile, newly enacted legislation aided the intervention by electricity regulator Aneel, which seized operational control of Rede’s eight subsidiaries last summer, and allowed Rede’s controlling shareholder to engage in exclusive negotiations for a sale of its assets to a consortium formed by Equatorial Energia and CPFL Energia. Although recent provisional measures have helped open the sales process up to other interested bidders, the events highlight the active role played by the Brazilian government as well as the accompanying challenges created for creditors in restructurings in Brazil.
Distress in Brazil’s banking industry has also highlighted the active role played by government and the difficulties faced by creditors seeking to engage in a restructuring in the financial sector. The banking industry in Brazil has seen frequent regulatory intervention in recent years as the country’s booming economy has begun to slow and the industry struggles to find long-term financing. Banco Cruzeiro do Sul attempted to restructure its debt in 2012 following the banking regulator’s discovery of accounting inconsistencies. Bondholders initially confronted the choice of accepting a steep haircut in a tender offer conducted by Brazil’s Depositary Insurance Fund (FGC), which assumed control of the bank last summer, or facing liquidation. Although the tender offer obtained the requisite level of creditor approval, the restructuring was conditioned on FGC’s successful sale of the bank and it ultimately entered liquidation proceedings following a failed sales process last September, highlighting the difficulty of conducting restructurings in highly-regulated industries.”
Lockmann.org 