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Brazilian sugar producer granted bankruptcy protection, Chapter 15 will follow

Monday, 8 February 2016 by Margarita Michaels

Brazil’s Felsberg Advogados is advising sugar and ethanol producer Tonon in bankruptcy proceedings in the state of São Paulo – with a Chapter 15 case likely to follow in the US shortly.

Citing low sugar and ethanol prices and the devaluation of the Brazilian real, Tonon Group filed for bankruptcy protection on 9 December, five months after restructuring its overseas debts. The Third Civil Court of the City of Jaú in the State of São Paulo granted its approval on 15 January.

Tonon, which operates three mills with the total capacity to process 8.2 million tons of sugar cane per year, saw its net debt jump 90 per cent from 2014 to the end of December 2015 – now totalling 3 billion reais (US$750 million). The company is represented in the bankruptcy proceedings – known as judicial reorganisation in Brazil – by Brazilian firm Felsberg Advogados. According to founding partner Thomas Felsberg in São Paulo, a Chapter 15 filing in the US is expected within weeks. Felsberg says Tonon’s position is not a unique one: 23 per cent of all Brazilian ethanol and sugar plants have asked for restructuring. He describes the crisis that led Tonon and the other companies to file for bankruptcy as a “perfect storm”, citing increasing dollar debts owing to the devaluation of currency in Brazil, climate problems, and the credit crunch. He adds, however, that the outlook is still optimistic.

Now that Tonon has obtained bankruptcy protection, the next step for the company is to formulate a reorganisation plan which will be submitted within 60 days. After that, creditors will have 120 days to discuss and either approve or reject the proposal. The presentation of the reorganisation plan will be followed with a detailed breakdown of Tonon’s proposed means for recovery, economic and financial viability, and a respective appraisal report on its assets. “The main objective of this [bankruptcy] request is to restore the capital structure and preserve business continuity,” said Tonon in a statement to regulators on 9 December. The company stated that it did not anticipate disruptions to its operations.

Last June, Tonon obtained a US$70 million loan from international bondholders after agreeing to a lower interest rate debt swap on US$300 million worth of senior secured notes due in 2020, issued by its wholly owned subsidiary Tonon Luxembourg. Gramercy Fund Management led the contingent of bondholders who agreed to supply the new financing, advised by the law firm Cleary Gottlieb Steen & Hamilton LLP, and Brazilian firm Stocche Forbes Advogados. The loan, which matures in 2019, has been secured by a mortgage over two sugar mills, Vista Alegre in the state of Matto Grosso and Santa Cândida in São Paulo, as well as a lien over their equipment. Felsberg represented Tonon in that restructuring too, as well as Davis Polk & Wardwell LLP, which is continuing to advise Tonon in its negotiations with bondholders in New York, its main creditors, who hold about US$550 million of outstanding notes issued by Tonon Luxembourg. The sugar and ethanol producer is also understood to have appointed investment firm Blackstone Group for advice.

In January 2015, another Brazilian sugar and ethanol producer, Aralco, won approval for a US$350 million restructuring plan, 11 months after it filed for bankruptcy protection. Brazilian law firm Dias Carneiro, Arystóbulo, Flores, Sanches and Thomaz Bastos Advogados advised Aralco, while Felsberg Advogados advised the bondholders and Pinheiro Neto Advogados the banks.

Counsel to Tonon Group

Felsberg Advogados

Partners Thomas Benes Felsberg and Paulo Fernando Campana Filho, associates Clara Moreira Azzoni, Roberto Notari, Claudia Polonio, and Karina Ferraz Deorio in São Paulo

Davis Polk & Wardwell LLP

Partners Timothy Graulich and Manuel Garciadiaz, associate Daniel Silberger in New York.

Latin Lawyer on-line de 8.2.2016


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