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Brazil’s Lupatech files second Chapter 15 case in as many years

Friday, 6 May 2016 (2 hours ago) by Margarita Michaels

Brazilian oil logistics company Lupatech Group has filed for Chapter 15 bankruptcy protection in a New York court – its second filing of the same nature in two years.

Lupatech’s application was entered before the Bankruptcy Court for the Southern District of New York on 27 April. The company cites the fact it has US property, New York law-governed debt, and creditors with proximity to the US, as reasons for the ancillary filing under the US Bankruptcy Code.

The case is being jointly administered to include several different debtors who collectively make up the Cayman-registered group, a provider of technical components and related services to the oil and gas industry, which has its centre of main interests (COMI) in Brazil. Lupatech is being represented by Shearman & Sterling LLP in the US.

The group’s Chapter 15 filing comes after it also received official judicial approval by the First Bankruptcy Court of the State of São Paulo in December, for a restructuring plan approved by creditors a month earlier.

The creditor-approved plan provides a number of options for over 4,000 secured and unsecured creditors. Secured creditors can choose between a quarterly repayment of debt over 18 years after a five-year hiatus, with annually accrued 3 per cent interest; a debt-to-equity conversion; or the early repayment of debt if the company sells assets, including the chance to take assets themselves.

Unsecured creditors, including bondholders, have the same options, but can also take quarterly repayment over a 20-year period at 3 per cent interest, which could accelerate if there is a “liquidity event” – meaning if the company is bought or merged. The plan would also allow the sale of production units free of all debts.

This second restructuring comes just over a year after Lupatech completed a pre-pack reorganisation in 2014 with an 85 per cent debt-to-equity conversion. The group had also filed a Chapter 15 case that year, which was routinely closed in accordance with section 350(a) of the Bankruptcy Code.

Even with this “very large” debt-to-equity conversion, Thomas Felsberg, founding partner of Felsberg Advogados and counsel to Lupatech in Brazil, says that the company “wasn’t able to make it” due to the tremendous drop in oil prices and the fact that its major client, Brazil’s national petroleum corporation Petrobras, is facing difficulties as a result of the well-publicised corruption investigation against it, known as “Operation Car Wash”.

He says Lupatech filed the new case under the Brazilian equivalent of Chapter 11, which has been “very well received” and approved by an “overwhelming majority”. The company is now in good shape and has the means to do well in the short term as it builds up its medium-term plans, he adds.

The main goal of the parallel Chapter 15 filing, Felsberg also explains, is to avoid any enforcement actions in the US as there are a significant number of US-issued bonds.

He says that Lupatech’s 2014 pre-pack was the first and only pre-pack in Brazil so far to encompass US-issued bonds and that, as a result of the landmark deal, the use of pre-packs is fast becoming an insolvency trend in the country: in the next week alone, two further pre-packs will be filed in Brazil. While they do not have US-issued bonds, Felsberg nonetheless notes that this is “quite unheard of”.

When it commenced its second bankruptcy in May, Lupatech explained in a press release that “the decision to request court-supervised reorganisation aims to protect the value of the company’s assets, its social function, and stimulation of economic activity and to meet the interests of the creditors and shareholders.”

Counsel to Lupatech

In-house counsel – João Marcos Cavichioli Feiteiro

Shearman & Sterling

Partner Fredric Sosnick, associate Randall Martin in New York

Felsberg Advogados

Partners Thomas Benes Felsberg and Paulo Fernando Campana Filho and associates Clara Moreira Azzoni, Pedro Henrique Torres Bianchi, Thiago Dias Costa, Eduardo Luiz Kawakami and Solano Magno Deboni Neiva in São Paulo


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