Odebrecht to Miss Debt Payment as Loan Deal Proves Elusive

(Bloomberg) -- Odebrecht SA, the Brazilian conglomerate at the center of the country’s epic graft scandal, will miss a debt payment due this week as it struggles to get more credit from banks to make up for operations that have all but halted over the last few years.

The privately held group with businesses from oil to construction won’t send funds to cover the 500 million-real ($144 million) offshore bond maturing April 25, a spokesperson said by phone, adding that the firm will try to use less than 30 days to meet its obligations.

Earlier, Odebrecht said it’s still negotiating with banks for a loan that would allow it to meet its obligations, according to an emailed statement.

The company’s perpetual notes fell 5.8 cents on Tuesday to 31.25 cents on the dollar, more than erasing the previous day’s gains. The maturing bond last traded at 95.3 cents on Monday, according to data compiled by Bloomberg. People with direct knowledge of the negotiations had said Monday that it was highly unlikely Odebrecht would be able to make the payment on time.

Odebrecht is suffering from the fallout of dwindling cash flow after Latin America’s construction industry came to a halt amid the so-called Carwash corruption probe, which sent some of its executives to jail. The scandal was centered on kickbacks for building contracts tied to Brazil’s state-run oil producer Petroleo Brasileiro SA.

The firm is counting on asset sales in Peru to pay down debt, including its Chaglla hydroelectric project, which it sold in September to China Three Gorges for $1.4 billion. It has yet to receive the proceeds as it awaits government authorization from Peru. As of June last year -- the latest available data -- Odebrecht had a total debt of 95 billion reais.

Banco Bradesco SA and Itau Unibanco Holding SA are negotiating a 2.5 billion real loan with Odebrecht but want seniority in payments over other loans, one of the people said. For that to happen other creditors such as Banco do Brasil SA and development bank BNDES would need to waive their priority, the people said, adding that discussions with the company continue.

Bradesco and Banco do Brasil declined to comment. BNDES and Itau didn’t reply to emails seeking comment.

On Tuesday, the company said in an emailed statement that talks for a deal to support its builder unit are "in an advanced stage." Once completed, the transaction would allow it to "comply with its existing payment obligations under the unsecured notes due 2018 and 2025, before the end of the applicable 30-day grace period."

Should the company fail to pay and be declared in default, a group of bondholders with more than 25 percent of the total bonds guaranteed by Odebrecht Engenharia e Construcao SA could then ask for an early payment of all of that outstanding debt, a person involved in debt talks said.

--With assistance from Paula Sambo

To contact the reporters on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net, Felipe Marques in Sao Paulo at fmarques10@bloomberg.net, Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net.

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, Julia Leite, Brendan Walsh

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