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Samarco Is Said to Postpone Talks Over $3.8 Billion of Debt

Samarco Is Said to Postpone Talks Over $3.8 Billion of Debt

(Bloomberg) -- Samarco Mineracao SA, the Brazilian mining venture that hasn’t operated since a deadly dam collapse in 2015, is postponing restructuring talks for $3.8 billion of debt until at least November, according to three people with knowledge of the plan.

Creditors of the company’s $2.2 billion in defaulted bonds and $1.6 billion in loans and other obligations are agreeing to the delay given the uncertainty around liabilities and fines the company may be subject to, said the people, who asked not to be named as talks are private. The venture, jointly owned by Vale SA and BHP Group Ltd, won’t have a clear idea on those figures until the end of October, two of the people said. The situation remains fluid and talks could resume earlier if circumstances change.

The company’s bonds due in 2022 and 2023 fell on the news.

Samarco Is Said to Postpone Talks Over $3.8 Billion of Debt

Samarco’s press department declined to comment in an email. Representatives for Vale and BHP also declined to comment.

The company, which had BRL 18.5 billion ($4.6 billion) in total debt as of Dec. 31, 2018, said the resumption of operations “will require funding and an adequate restructuring of our financial obligations, such as the debts under negotiation with our creditors," according to a company filing. "Samarco clarifies that no consensual agreement has yet been reached and that it will resume negotiations in a timely manner."

Legal and financial advisers for the restructuring have been informed that fees will be halted until further notice, starting this month.

Second Accident

Talks between the company and creditors started in November, with the company assuming fees for all the parties involved. But negotiations were abruptly interrupted in late January, when Vale suffered an even worse disaster at one of its wholly-owned mines in Brumadinho, Minas Gerais state.

The Brumadinho dam burst killed more than 240 people, while another 40, who remain missing, are presumed dead. That surpassed a dam spill in 2015 which killed 19 people and polluted waterways, and was at the time considered Brazil’s worst environmental disaster.

The JV should clear necessary judicial hurdles to regain its license by September. If approved, operations could resume by mid to late 2020, Vale’s Chief Financial Officer Luciano Siani Pires said on a conference call with analysts.

JPMorgan Chase & Co., which is advising Samarco in the restructuring, declined to comment. Other advisers include: Clifford Chance, FTI Consulting, Houlihan Lokey and Brazilian law firm Padis Advogados.

The price of Samarco’s $1 billion of notes due in 2022 plunged more than 30 percent after the Brumadinho accident to about 52 cents on the dollar. While the 4.125% notes due in 2022 were trading at 73 cents on Wednesday, almost the same price as before the accident, they fell almost 2 cents to 71 cents on the dollar on Thursday following the news. Samarco’s 5.75% bonds due in 2023 also fell almost 2 cents to about 74 cents on the dollar. Distressed-debt funds including Solus Recovery Fund LP, York Total Return LP and Silver Point Capital Fund LP, stepped in after buying claims held by Japanese banks.

--With assistance from Peter Millard and James Crombie.

To contact the reporter on this story: Pablo Gonzalez in Sao Paulo at pgonzalez49@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Christopher DeReza, Sally Bakewell

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