Brazil Restructuring Update 2014: Does OGX

Brazil Restructuring Update
2014: Does OGX Change the
Paradigm? How Does Brazil
Compare to Other Markets
in the Americas?
Floris B. Iking, Moderator
Alvarez & Marsal; Mexico City
C.J. Brown
The Blackstone Group; New York
Giuliano Colombo
Pinheiro Neto Advogados; Sao Paulo, Brazil
Richard J. Cooper
Cleary, Gottlieb, Steen & Hamilton LLP; New York
Ruben Kliksberg
Redwood Capital Management, LLC; Englewood Cliffs, N.J.
Ricardo Knoepfelmacher
Angra Partners Turnaround; Sao Paulo, Brazil
NEW Online Tool Researches ALL ABI Resources
Online Research for $295*
per Year, NOT per Minute!
With ABI’s New Search:
• One search gives you access to content across ALL ABI online
resources -- Journal, educational materials, circuit court opinions, Law
Review and more
• Search more than 2 million keywords across more than 100,000 documents
• free for all ABI members
*Cost of ABI membership
One Search and You’re Done!
search.abi.org
66 Canal Center Plaza • Suite 600 • Alexandria, VA 22314-1583 • phone: 703.739.0800 • abi.org
Join our networks to expand yours:
© 2014 American Bankruptcy Institute All Rights Reserved.
AMERICAN BANKRUPTCY INSTITUTE
BRAZILʼS CHAPTER 11 PROCESS:
RECUPERAÇÃO JUDICIAL DE EMPRESAS
May 2014
BRAZILIAN CHAPTER 11 OVERVIEW
Introduction and Objectives.
The Brazilian Law of Bankruptcy and Corporate Restructuring (Law 11.101/05) includes two options
of recovery:
– Judicial Recovery: Legal measure to prevent bankruptcy. Processed with the judicial discretion and
prejudice by providing the judgment debtor the possibility of discharge of debts with creditors
– Extrajudicial Recovery: prior agreement between the creditor and debtor that may or may not be
approved (occurs outside the Judiciary)
Art. 47 (Law 11.101/05)
"The judicial reorganization aims to
facilitate overcoming the situation of
economic-financial crisis of the debtor in
order to allow the continued production
source, the employment of workers and
the interests of creditors, thus promoting
the preservation of the company, its
social function and stimulating economic
activity...”
Objectives:
Facilitate overcoming the economic situation
of financial crisis
Maintain production and employment
Safeguard the interests of creditors
Carry out the social function of the company
1
147
CROSS-BORDER INSOLVENCY PROGRAM 2014
BRAZILIAN CHAPTER 11 PROCESS
ILLUSTRATIVE TIME PERIOD FROM PRE-PETITION PLANNING THROUGH TO EXIT
If there is no
questioning,
everything is OK.
D –X
-X
D
D zero
zero
D
D +3
+3
D +63
D +153
+153
D
D + 170 D +200
22ANOS
YEARS
..........
6 MONTHS
SUSPENSION OF JUDICIAL ACTIONS AND
EXECUTIONS
ACTING ACCORDING TO THE PLAN APPROVED
Approximate deadline
“Non-extendable“ deadline
2
BRAZILIAN CHAPTER 11 PROCESS
Preparation of Chapter 11 – main points.
2) Lawyers
1) Company
Provide a cash position that allows
the continuation of company activities
Hire appropriate domestic and
international counsel
Pay attention to the issue of
inventories and possible negotiations
before the Chapter 11
7) Stockholders
Prepare the stockholder in order to
explain the process as a whole possible pressures and threats
Contemplate strategies for shielding
them - separation of company
concepts and businessman
6) Suppliers
Define a strategy for fundamental
suppliers
PREPARATION OF
CHAPTER 11
3)Employees
If necessary, execute reductions-inforce 10 days before the request for
recovery (credits becomes
contemplated in the recovery process)
Think about strategies for transforming
employees who are in the company in
creditors
4) Creditors
Understand the list of creditors and try
to adjust them to obtain a favorable
situation in the General Assembly of
Creditors
5) Court of jurisdiction
Analyse the best court to enter with
the request of Chapter 11
Observe whether it is valid to pay
some of the debts before entering
the Chapter 11 process
3
148
AMERICAN BANKRUPTCY INSTITUTE
BRAZILIAN CHAPTER 11 PROCESS
During the process– important points.
2) Capital
Possibility of capital increasing (ex: dip
finance, assets selling, new investors)
1) Cash
Cash generation to attend working
capital
DURING CHAPTER 11
PROCESS
8) Taxes
Resolve tax matters with appropriate
authorities
New corporate structure analysis–
UPI’s creation
4) Profitability
Focus on operation’s profitability
5) Communication
7) Judicial Administrator
Keep a good relationship with the
Judicial Administrator
3) Corporate Structure
6) Banks and creditors
Strategy to get closer to banks and
creditors (focus on plan approval)
Chapter 11 communication (inside
and outside the company) – staff,
union, suppliers, press)
4
BRAZILIAN CHAPTER 11 PROCESS
Creditors.
Out of Chapter 11
Chapter 11
1st class: Labor
– Payments: 1) maximum term for labor debts payment: one year (for overdue up the date of the recovery request); 2) less
than one year to pay claims arising from labor legislation or resulting from accidents at work accrued through the date of
the bankruptcy filing; 3) within 30 days for payment strictly salary amounts, due to the previous bankruptcy filing three
months, limited to five (5) minimum wages per worker
2nd class- Real guarantees:
– Payments according to recovery plan
3rd Class- unsecured creditors
– Payments according to recovery plan
Creditors not applicable to Chapter 11: fiduciary, leasing and advances on currency exchange contracts
– Payments according to original contracts
Taxes
5
149
CROSS-BORDER INSOLVENCY PROGRAM 2014
BRAZILIAN CHAPTER 11 PROCESS
Chapter 11 plan approval.
Quorum:
– 1st Assembly = creditors holding more than half of the claims of each class;
– 2nd Assembly = any number
Votes:
– 3 classes vote (creditor security interest may vote for 2 classes: in the 2nd to the value of the property,
and the 3rd for the remainder of the loan)
Approval:
– Favorable vote of creditors present representing more than 50% of all credits representative of each
class and, also, by a simple majority of creditors present
– Favorable vote of creditors representing more than half the value of all gifts credits and additionally
approval of 2 classes of creditors; and in class that there rejected affirmative vote of more than one third
6
DIFFERENCES OF THE LAW
Positive Aspects.
Readjustments of debt:
Value, shortage, term, etc.
Payments according to the
company's cash generation
Protection against execution,
actions (6 months)
Possibility to split operations
UPIs
Absence of Succession on
taxes and labor liabilities
150
Positive Aspects
AMERICAN BANKRUPTCY INSTITUTE
DIFFERENCES OF THE LAW
Challenges during the Brazilian Chapter 11 process
Taxes negotiation
Labor Courts doesn’t
recognize
Chapter 11’s priority
UPI definition
Shareholders approval
(different understandings)
Financing during
Brazilian Chapter 11
Distortion of goals
(UPI transfer to
former owners)
8
151
CROSS-BORDER INSOLVENCY PROGRAM 2014
Judicial recovery process
New York, May 2014
None of its parts can be copied or distributed outside client organization without prior written authorization. This report has been used as support
material for an oral presentation and, therefore, it does not represent complete record of the topics presented.
Judicial recovery process
Company overview
Company assets
Tubarão Martelo
Colombia

Pará-Maranhão
5 onshore blocks

• Tubarão Martelo Field first oil in 2013
5 offshore blocks
• Current production of 10k bbl/d in the
FPSO OSX-3 with 2 production wells
Ceará
5
4

6
2 offshore blocks
7
− Expect production of 30k bbl/d
when the investment is completed
Potiguar
2 offshore blocks

• Water depth of 120 meters
• Production Development Project:
Espírito Santo

3 offshore blocks
− 7 production wells and 3 water
injector wells
3
1
2
Campos

6 offshore blocks
Santos

3 offshore blocks
BS-4 (Atlanta e Oliva)
• Concession agreement:
− OGPar: 40%
− Queiroz Galvão (QGEP): 30%
(operator)
− Barra Energia: 30%
Production and Development Assets
Estimated net to OGX recoverable volume (P50)
Total (MM bbl)
236,9
• Water depth of ~1,500 meters
Prospect
• Atlanta start-up expected for 2015
11th Round (Ceará Basin and
Potiguar Basin)
Tubarão Azul (Campos)
0,9
Pará-Maranhão
Tubarão Martelo (Campos)
88
Espirito Santo
Atlanta (Santos)
101
Colombia
Oliva (Santos)
47
• 12 production wells
• Expected peak production of ~90
k bbl/d
CONFIDENTIAL
152
1
AMERICAN BANKRUPTCY INSTITUTE
Judicial recovery process
Financial situation
Company share price(1) (R$)
Financial highlights (R$ bn)
24
0.9
0.3
22
-0.2
-0.3
-0.4
-0.7
Revenue
and
EBITDA
20
18
-1.0
-2.4
-4.3
Revenue
16
2008
14
-0.3
2009
EBITDA
2010
CAPEX
2011
-6.5
2012
2013
9.5
12
7.1
10
8.0
6.6
Financial
debt and
cash
position
8
6
4
2.4
2008
2009
2010
Debt
2
0
jan/09
jan/10
jan/11
jan/12
jan/13
jan/14
(1) After stocks’ split
4.8
4.1
2011
1.0
2012
0.0
2013
Cash position
Poor operational indicators, low cash position, and high
level of debt entail a urgent restructuring plan
CONFIDENTIAL
2
Judicial recovery process
Situation pre judicial recovery filing
Situation in October
Judicial recovery
• Judicial recovery was the unique
alternative for OGPar survival
• Low cash position
Financial
situation
− TBMT was in final stage of investment
to produce oil in two wells. Continuation of
investments was crucial to reach the first
oil
− TBAZ was not producing
− First instalment of BS-4 already overdue
− 180-days of grace period: none of
creditors can execute the company to pay
debts
Benefits for
OGPar
• Total debt of $ 5.7 bn
• Petronas deal was not concluded
− Organized process to restructure all
company’s debts
− Possibility of a new negotiation with
suppliers to reach the completion of 1st
and 2nd TBMT wells
− Allowed sale of OGX Maranhão to
Cambuhy
• Bonds’ interest to be paid in the beginning
of November
• Bondholders (Financial debts): $ 3.8 bn
• No agreement achieved with major
unsecured creditor’s (bondholders)
Negotiations
• Pressure from suppliers to pay overdue
payments
− 2018 bonds: $ 2.7 bn
Pre-petition
debts
• Sale of assets to monetize the company
(negotiation with Cambuhy to sell OGX
Maranhão)
− 2022 bonds: $ 1.1 bn
• OSX: $ 1.5 bn
• Suppliers: $ 0.4 bn
− Foreign suppliers: $ 0.16 bn
− National suppliers: $ 0.24 bn
CONFIDENTIAL
3
153
CROSS-BORDER INSOLVENCY PROGRAM 2014
Judicial recovery process
Main events since Judicial Recovery (1/2)
NY meeting with
bondholders
NEGOTIATION
Technical and
financial due
diligence
WITH
CREDITORS
Signing of PSA
15/Oct
Management
restructure
OGX
Maranhão
31/Oct
Paulo Narcelio
as new
company CFO
15/Nov
30/Nov
31/Dec
CADE
approves
transaction
Agreement with
Cambuhy
Judicial
recovery
15/Dec
Angra takes on
management and
restructuring process
Deferral of
judicial
recovery
Petition of Judicial
Recovery
Provisional
completion of
OSX-3
Operation
Decision of
DTT as
judicial adm
First offload and
sale of Tubarão
Martelo oil
First oil of
TBMT field
CONFIDENTIAL
4
Judicial recovery process
Main events since Judicial Recovery (2/2)
Release of DIP –
1st tranche
Agreement with
OSX-3
NEGOTIATION
WITH
CREDITORS
Release
of bridge
Execution of
debentures
indenture
Release of a
new facility
Signing of
Subscription
Agreement
15/Jan
31/Jan
15/Feb
28/Feb
15/Mar
31/Mar
15/Apr
30/Apr
Corporate
governance
Closing of
capital
increase
OGX
Maranhão
Judicial
recovery
Operation
Judge
acceptance of
DIP collateral
Release of
final
creditor’s list
Filling of Judicial
Recovery plan
Agreement with OSX1 to return production
at Tubarão Azul field
First complete
cargo sold to Shell
CONFIDENTIAL
154
15/May
Shareholders approve
2014 financial
statements
Convening of
creditors’ meeting
for June, 3rd
Payment of all
overdue BS-4 cash
call
5
AMERICAN BANKRUPTCY INSTITUTE
Judicial recovery process
Next steps to reach the target structure
Target structure according to PSA
EB
1
Minorities
50.2%
Current
situation
Steps to reach the target structure
• Pre-petition debt: ~$
5.7 bn
− Bonds: $ 3.8 bn
− OSX: $ 1.5 bn
− Suppliers: $ 0.4 bn
OGPar
1
share
Approval of
judicial plan
49.8%
99.99%
2
• DIP financing: $ 215
M ($ 90 M not funded
yet)
OGX
OGX IPO
3
DIP financing
Target
structure
65%
Pre-petition
debts
Current
shareholders
25%
• New judicial recovery plan will be filled by
Tuesday (May, 20th)
• Creditors’ assembly confirmed for June,
3rd, Tuesday
• Plan ratification by judge until June, 12th
• Release of 2nd tranche afterwards
Conversion of
debts
10%
4
Merge with
OGPar
OGX
• Reviewed auditor’s opinion on FY2013
financial statement by June, 12th
• Filling of IPO at CVM (Brazilian SEC) in
the week of June, 19th
• Approval of the capital increase in General
Shareholders’ Assembly
• First conversion: Pre-petition debts
• Second conversion of DIP financing
afterwards
• At target structure, OGX will merge with
OGPar
− OGPar shareholders will receive OGX
shares
• Issuance of warrants to current
shareholders
CONFIDENTIAL
6
Judicial recovery process
Lessons learned
• A risky business like Oil & Gas should be funded only with equity, specially at a pre operational stage
• In a judicial recovery process, to increase the chance of success, some assumptions need to be favorable:
− Strong cash position to survive during the grace period (not applicable on OGX case)
− Agreement with main creditors to have the majority to support the plan
− Negotiation with main suppliers to keep the operation running
− Coordinated process among company, legal and financial advisors
• Some challenges still ahead, need to keep the eyes on the ball until the very last moment
CONFIDENTIAL
7
155
CROSS-BORDER INSOLVENCY PROGRAM 2014
Judicial recovery process
New York, May 2014
None of its parts can be copied or distributed outside client organization without prior written authorization. This report has been used as support
material for an oral presentation and, therefore, it does not represent complete record of the topics presented.
156

Download Report