It took nearly a decade for Brazil’s Samarco to recover from the fatal collapse of a dam at one of its iron ore mines in 2015 – a tragedy that nearly brought the company to its knees. But patient negotiations with creditors and shareholders resulted in an agreement at the end of 2023 that culminated in the issuance of a bond that served as the capstone to a $10 billion bankruptcy process – one of the largest in Brazil’s history.
Gustavo Selayzim, Samarco’s CFO, says the iron ore pellet producer has emerged from the process with strong finances that fully complement its widely-renown operational prowess; he adds that Samarco has been delivering positive results while adopting levels of transparency more commonly seen among listed companies.
Even without the operational turnaround, the change of Samarco’s trajectory has been remarkable. The company was roundly denounced following the bursting of a tailing dam which killed 19 people and caused widespread environment damage in South-eastern Brazil.
As a result, the restructuring of Samarco’s debt involved a diverse group of stakeholders, ranging from heavyweight distressed debt funds and large suppliers to workers’ unions, local governments and foundations created to represent the interest of victims of the disaster. For a while the focus fell squarely on Vale and BHP, the two mining giants that own the firm.
Selayzim notes that the road taken by the company and its creditors was anything but painless. Tensions were consistently high as creditors had to carry Samarco’s debt on their balance sheets for years while restructuring terms were being negotiated in endless rounds that yielded more than 40 versions of a plan before a final agreement could be hatched.
“There were many doubts, from us, from the creditors and even from the courts, over how the process would work,” Selayzim. “But I believe the process ended up generating a sentiment of trust between the parties that finally resulted in a consensual plan.”
He says that the final outcome was a plan that proved to be satisfactory for creditors, while fitting Samarco’s post-structuring business plan. The restructuring comprised the exchange of Samarco’s old notes and facilities – 5.375% notes due 2024, 5.75% notes due 2023, and 4.125% notes due 2022, as well as its prepetition pre-export finance facilities – for new 9% senior notes due 2031 issued on December 1, 2023
“Our creditors understood that, for the debt to be paid, investments needed to be made, and that who owned the debt was Samarco, not the shareholders,” Selayzim says. “Although it is true that the shareholders made a huge contribution to the process.”
Samarco’s bankruptcy process was a landmark in the Brazilian market because it was the first debt restructuring performed under a new bankruptcy law implemented in 2021. “In the end, it took us a long time to close the deal because it was a first in the market, but we can say it was a success, and it will probably become a reference for other cases,” Selayzim says.
The joint plan was approved by the Brazilian court overseeing Samarco’s judicial reorganization proceeding on September 1, 2023, and was granted enforcement in the US by the United States Bankruptcy Court for the Southern District of New York on October 10, 2023.
Selayzim says the success of the process was reflected in how well the market received Samarco’s new issue to conclude the debt restructuring. At first, 100% of the new notes were purchased by creditors, but a second tranche of $250 million was issued to allow extra capital allotment by the shareholders. Yields started at 12.5% but have since fallen below 10% in the secondary market, and trading levels have been similar to other companies in the same universe, Selayzim points out. The whole operation resulted in a reduction of around $1.1 billion in Samarco’s debt with bondholders.
“I am doing road shows to prepare the company for the future, and many investors are asking us when we will issue the next bond,” Selayzim says. “Right now, Samarco is, financially, a very healthy company.”
Ad-Hoc Group’s Financial Advisor: Houlihan Lokey; Integra
Ad-Hoc Group’s Counsel: Davis Polk; Ferro, Castro Neves, Daltro & Gomide; Padis Mattar
Samarco’s Counsel: In-house counsel; Cleary Gottlieb; Advocacia Procópio de Carvalho; Cescon Barrieu; Galdino & Coelho; Pimenta, Takemi, Ayoub; Machado Meyer; Vilas Boas Lopes Frattari
BHP’s (Shareholder) Financial Advisor: Rothschild
Samarco’s Financial Advisor: JP Morgan; Journey Capital
Vale’s (Shareholder) Financial advisor: Moelis
Vale’s Counsel: In-house counsel; Norton Rose; Pinheiro Guimarães; Sergio Bermudes; Tolentino
BHP Billiton’s Counsel: In-house counsel; Sullivan & Cromwell; BMA; Pinheiro Neto
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