Firms line up to close Rede debt restructuring
Latin Lawyer on-line
Tuesday, 9 December 2014 (1 hour ago) by Lulu Rumsey
The New York office of Gibson Dunn & Crutcher LLP and Brazilian firms Stocche Forbes Advogados and Galdino e Carneiro Advogados have helped Brazilian energy company, Energisa, close a notes restructuring by its indebted subsidiary Rede Energia, aimed at relieving the latter’s US$3 billion debt burden.
Electricity provider Rede was advised by Brazil’s Felsberg Advogados – it is also thought to have hired US firm White & Case LLP.
In the restructuring, bondholders that were owed US$496 million were paid 25 per cent of the outstanding sum through a cash payment and ownership of the bonds was transferred to Energisa. The bonds’ trustee, Bank of New York Mellon (BNYM), was advised by Chadbourne & Parke LLP and Tauil & Chequer Advogados in association with Mayer Brown, while the bondholders were assisted by Bingham McCutchen LLP in New York and Brazil’s Pinheiro Guimarães – Advogados.
The restructuring resulted in Rede cancelling the bonds and reissuing them as two new payment-in-kind reais-denominated securities due in 2015 and 2036. Wilmington Savings Fund Society acted as trustee and retained Chadbourne & Parke. Payment-in-kind securities pay interest in additional bonds rather than cash and are commonly issued by companies in financial difficulty.
Gibson Dunn associate Vladimir Sentome explains that Rede had the option to issue either the new securities or inter-company notes. “Although it may look like an inter-company obligation [since Energisa is its parent company], for tax reasons, we thought the best thing to do was to keep the restructured notes in the US clearing system with a formal US trustee, like a standard high yield investment rate bond would be,” he explains. Under the restructuring plan, the new securities had to have a foreign custodian, which is why the notes have a US trustee.
Rede has been controlled by Energisa since April, when it bought Rede’s capital for just 1 real and agreed to invest 2 billion reais (US$796 million) in the troubled company. Rede, which controls eight electricity distributors in Brazil, got approval for the restructuring plan from a São Paulo bankruptcy court back in 2013, then secured Chapter 15 protection from a Manhattan bankruptcy court earlier this year, in what many said was evidence of US courts’ increasing confidence in Brazilian insolvency measures since the country passed its bankruptcy law in 2005.
Some bondholders opposed to the restructuring deal challenged the Chapter 15 proceedings before the ruling was passed and have since appealed it, but Felsberg partner Thomas Felsberg believes the closing of the transaction will put a full stop to any challenges: “We believe this case cannot be reversed because the creditors were paid and the company has received a huge investment.”
Rede’s creditors voted to approve Energisa’s takeover bid in July 2013, choosing its plan over another proposed by Equatorial Energia, which had teamed up with CPFL Energia in a separate takeover bid. Tauil & Chequer Advogados partner Leonardo Mourato says BNYM was crucial to helping creditors approve Energisa’s takeover, concluding that “without BNYM, there would not have been a competitive process.”
The transaction closed on 29 October.
Counsel to Energisa
Gibson Dunn & Crutcher LLP
Partner Jose Fernandez and associates Vladimir Sentome and Gina Santino
Partners Henrique Filizzola, Domingos Refinetti and Renato Coelho, and associates Daniela Yuassa, Victoria Mastrobuono and Ingrid Hessling
Galdino e Carneiro Advogados
Partners Bernardo Carneiro and Flávio Galdino and associates Gustavo Salgueiro, Elias Feijo and Alexandre Faro in São Paulo
Counsel to Rede Energia
Partners Thomas Benes Felsberg and Paulo Fernando Campana Filho, and associates Clara Moreira Azzoni, Eduardo Luiz Kawakami, Melina de Almeida Colina Fernandes, Ligia Espolaor Veronese and Tatiana Brenand Bauer in São Paulo
Counsel to the Bank of New York Mellon
Partner Marian Baldwin Fuerst and counsel Francisco Vazquez in New York
Partners Leonardo Mourato and Adriana Dias, and associate José Guilherme Botelho in São Paulo
Counsel to the bondholders
Bingham McCutchen LLP
Partner Timothy DeSieno in New York
Partner Eduardo Augusto Mattar and associates Laura Massetto Meyer and Priscila Damião in São Paulo.