Odebrecht Creditor to Plan Triggering Debt Cross-Default

(Bloomberg) -- Brazilian lender Caixa Economica Federal is considering taking steps that would force Odebrecht SA to seek bankruptcy protection, according to people with knowledge of the matter.

The government-owned bank is planning to ask the holding company to accelerate debt payments by triggering a cross-default clause after Odebrecht’s ethanol unit Atvos SA filed for court protection from creditors last week, said the people, asking not to be named because the discussions are private.

The holding company guarantees about 11 billion reais that Atvos has borrowed from local banks, with Brazil’s six biggest lenders among the creditors, including Caixa. In total, the conglomerate owes about 6 billion reais ($1.56 billion) to Caixa as well as a fund the bank manages, and this debt has no collateral, three of the people said.

A representative for Caixa declined to comment. A representative for Odebrecht said there are no plans to file for bankruptcy protection.

Odebrecht's 5.25% bonds due June 2029 traded below 10 cents on the dollar for the first time on Wednesday, according to Trace price data. The $500 million of notes were trading above 16 a month ago.

Read more: From sugar to shipyards, a rundown of Odebrecht’s $26 billion debt

The privately-held Odebrecht holding company, which has been seeking to restructure about 5 billion reais of its own debt, is facing pressure after the collapse of talks with LyondellBasell Industries NV over one of its most valuable assets, the shares from the petrochemical unit Braskem SA. A deal would have brought a much needed cash injection, but after months of negotiations, the companies said Tuesday that talks have ended.

If the holding company seeks court protection, any negotiations to sell Braskem will be put on hold because shares of the company would be included among the assets to be divided among creditors, the people said. The Braskem stake is already pledged as collateral by Odebrecht for local bank loans.

Atvos, Brazil’s second-biggest ethanol producer, said last week that the bankruptcy protection filing is a result of “a hostile push from an international fund.”

Odebrecht, with total debt of almost 100 billion reais, 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 and shareholders to jail. A court decision to block Braskem’s 2.67 billion reais in dividends to shareholders is also adding to Odebrecht’s cash crunch.

Besides Atvos, other Odebrecht units are also at risk of having to ask the court for bankruptcy protection against creditors. These include the real estate unit OR and the shipyard Enseada Industria Naval Participacoes SA, the people said.

The construction unit Odebrecht Engenharia e Construcao SA has been attempting to reach a deal to restructure $3 billion of debt in default since November. Talks between the builder and majority bondholders led by Gramercy Funds Management LLC are taking longer than a group of minority creditors want, the people said last month. A holding company bankruptcy filing would create another hurdle for a successful out-of-court agreement at the subsidiary.

Earlier Tuesday, newspaper O Estado de S. Paulo said Caixa Economica Federal and Banco Votorantim have signaled to Odebrecht that they may demand the guarantees for loans granted to the company, without saying how it obtained the information. Representatives for Votorantim and Caixa declined to comment, while Odebrecht reiterated that it’s working on solutions to stabilize the group’s finances.

--With assistance from Aline Oyamada.

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;Fabiana Batista in Sao Paulo at fbatista6@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Nikolaj Gammeltoft, Julia Leite

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