Category: Corporate & Sovereign Strategy

Brazil’s Perdigao is planning more corporate restructuring, including a partial split-off of Perdigao Agroindustrial and the transfer to Perdigao of the unit. This consists of its investments in subsidiaries Perdigao Agroindustrial Mato Grosso, Batavia Industria de Alimentos and Maroca & Russo Industria e Comercio (Cotoches), as well as certain liabilities in the form of debt obligations, accounts payable and intercompany loans. Perdigao will incorporate the wholly owned subsidiaries and the restructuring will be submitted for approval of general shareholders. Goodwill to be registered as part of the acquisition of the incorporated companies, in the amount of BRL149m, based on forecasts of future years’ earnings and will be amortized in its entirety in fiscal year 2008. The food company also states that it got BRL284m from BNDES last week for a number of already completed capacity expansion investment projects.

Ecuador’s government will decide what action to take regarding its “illegal” debt, as the release Thursday of special debt audit commission’s report should be followed by recommendations for action in early December. The global bonds due 2012 and 2030 “show serious signs of illegality,” the report says, alleging no government authorization for issuance and no transparency during negotiations. The commission makes no recommendation as to what action the government should take. Finance Minister Maria Elsa Viteri said Thursday that the government was open to debt restructuring proposals from bondholders, according to local and wire reports. Viteri was also reported as saying that during the first week of December the executive branch expects to receive a report from a legal commission that will determine the direction and measures the government will take. “We suspect that the government will try to engage the bondholders in a debt restructuring process,” Goldman Sachs says. The shop finds such a move to likely be unsuccessful due to the government’s admittedly solid capacity to pay, bondholders’ already defensive positions, the government’s lack of a clear plan for restructuring and likelihood that it will seek an unrealistically high haircut of some 60% or more. Goldman adds that a breakdown in negotiations would likely lead to outright repudiation. “If Ecuador defaults, then bondholders will have a strong legal case to file in the United States. The country waived immunity under the Foreign Sovereign Immunities Act, and so can be sued here in the US for its debt default,” says Kenneth Levine, an attorney at Carter Ledyard & Milburn, who is following the issue for clients. He adds that finding assets in the US to seize to collect on a judgment is very promising, as the US dollar based country is interconnected with the US economy. Ecuador last week withheld a $30m interest payment on its $510m 2012 bond, using a 30-day grace period to analyze the commission’s report

Cap Cana appears to be seeking to avoid default on a loan that came due yesterday, though on what terms was unclear as of late Wednesday. No default notices were reported issued in regards to the Dominican borrower’s $100m bridge loan via Deutsche and Morgan Stanley. The facility matured yesterday and people with knowledge of the process say they believe creditors and the company’s advisor, New York-based Weston Group, are in discussions to work out a solution that involves a discount on the facility. The company said in a statement issued late Monday it had offered its creditors – understood to include 5 hedge funds and one larger institutional investor – alternatives to paying down the full amount, but that the offers were rejected. People away from the process say the initial offer involved a substantial haircut to initial value. Hedge funds and buysiders in general are less willing to enter talks that would suggest a loss of principal, since the industry is seeing substantial redemptions and portfolio losses, according to people away from the process. Cap Cana’s CFO Alex Hazoury was not available for comment.

Dominican luxury resort Cap Cana, the once celebrated darling of LatAm structured finance, will this morning decide if it will default on a $100m bridge loan it raised with Deutsche Bank and Morgan Stanley a year ago. A default on the facility, which matures today, would trigger cross-default clauses on $250m worth of 2013 9.625% notes. Talks between the company and its bridge creditors, which include a group of five hedge funds and one mutual fund, were going on as LatinFinance went to press. People close to the process say Cap Cana initially offered to settle the debt at a substantial discount, which the creditors did not accept. Creditors allege the company’s controlling family, the Hazourys, have more than enough cash to pay down the bridge, having just sold its airport concessions company to Advent, a private equity firm, for a sizable, yet unannounced quantity understood to be well above to the value of the maturing debt. People close to the talks say they believe a compromise is the likeliest outcome and that both sides have much to gain from avoiding a default. Holders of the bridge may be willing to accept some sort of haircut on the deal, while the Hazourys may find a way to pony up more cash than they have offered creditors over the past week, say the executives. Alex Hazoury, CFO, didn’t return calls and emails seeking comment. Cap Cana’s advisors, New York-based Weston Group, declined to comment on the bridge loan talks.

Holders of $250m in 2013 9.625% Cap Cana bonds issued in late 2006 are heard to be organizing themselves in anticipation of a potential default on a $100m bridge loan that comes due today. JPMorgan executives are heard to have sought to organize the diverse group of holders through a conference call Monday. While JPMorgan has never done business with Cap Cana, it has this year employed former Bear Stearns and Lehman Brothers bankers who have worked with the resort. Bear Stearns underwrote the company’s first and only bond, and Lehman attempted to bring the company to the bond and private placement markets earlier this year, without any luck. People close to the process say bondholders want to be prepared in the event of a default. The bonds are secured by first priority mortgage over real estate and receivables from the sale of property. They were heard trading at around 20 cents on the dollar, which one buyside executive away from the transaction says reflects holders’ doubt regarding Cap Cana’s willingness to pay its other debt obligations. Cap Cana met its November 3 coupon, according to a JPMorgan report. The bridge loan is secured by separate assets from those that back the notes. Cap Cana executives didn’t return calls seeking comment.

Cap Cana’s restructuring advisor, New York based Weston Group, says JPMorgan is looking to influence the outcome of ongoing debt negotiations by releasing a research report on the credit only days ahead of its maturing bridge. “JPMorgan is trying to push Cap Cana to some sort of settlement [with this research report,]” says John Liegey, CEO of Weston Financial Group. The executive, who began advising Cap Cana on its debt issues in early October, alleges the authors of the report have used inside information obtained from previous relationships with the company to write the report. The report, issued on Monday afternoon, discusses the credit and the greenfield project in depth, as well as the various scenarios the company faces today, including its debt problems. It recommends investors be overweight in the 2013 9.625% notes. A JPMorgan spokeswoman declines to comment on the accusations.

With most of the likely restructuring scenarios for Ecuador’s $4bn in global bonds yielding $20-$30, it appears some bondholders may be considering resorting to legal action, Barclays says in a report. Local news and wire reports emerged Tuesday describing the findings of the Correa government’s debt audit commission – due to be fully released Thursday – characterizing the sovereign’s 2012, 2015 and 2030 bonds and other debt as “illegitimate.” It is not yet clear what type of restructuring options the government will pursue, though it missed a $30m coupon payment last week in order to use the grace period to continue evaluating repayment. Barclays finds that holders could see exit values of $27-$40 if Ecuador agrees to a 50% haircut, or $28-$65 in a scenario where it renegotiates coupons at 50% of the original amount. The shop does not consider a complete repudiation of the debt likely, as this does not appear to be Ecuador’s goal.