Braskem is preparing to file for an out-of-court debt restructuring, aiming to reorganize $10.3 billion in debt. This move comes as its 60-day temporary protection from creditors, granted by a court in São Paulo, is set to expire on August 24. The company seeks to secure an additional 90-day grace period to finalize a detailed restructuring plan.
The initial plan for the extrajudicial restructuring, which requires approval from one-third of the creditors, does not involve the immediate sale of assets. Sources indicate that there isn't enough time for such complex transactions, although asset sales might be considered later. This strategy aims to avoid a more formal, court-supervised recovery process, a scenario both Braskem and its creditors wish to avert.
Negotiations have intensified, involving Braskem, its major shareholders IG4 Capital and Petrobras, and various creditors. Petrobras, despite being a minority shareholder with 36% of Braskem's total capital, is reportedly considering offering commercial support, such as more flexible payment terms for naphtha supply. Petrobras is the sole producer of naphtha in Brazil, a critical raw material for Braskem, and more lenient terms would provide much-needed financial breathing room. Previously, Petrobras had tightened conditions, reducing its supply to Braskem from 70% to about 30% of the company's naphtha needs.
A significant sticking point in negotiations has been the restructuring proposal, which includes a 2.5-year grace period for interest payments and five years for principal repayments, without a "haircut" on the debt. Some bondholders and a large foreign bank have shown resistance. Creditors have also pushed for a firmer financial commitment from Petrobras and IG4, potentially through capital increases or working-capital financing, although a shareholder capital injection is currently ruled out. The goal is to reach a consensus to avoid a court-supervised restructuring, with some participants suggesting that a portion of the debt might eventually need to be converted into equity given the size of the liabilities and weak cash generation.
In a related development, Braskem Idesa, a joint venture between Braskem and Mexican conglomerate Grupo Idesa, filed for Chapter 11 bankruptcy protection in the U.S. This subsidiary reached an agreement with its stakeholders to reduce its debt from $2.5 billion to $1.6 billion, offering a potential model for the broader Braskem restructuring.
