Brazil Bankruptcy Spike Predicted

Brazilian bankruptcy filings are set to soar as the country’s corporates are squeezed by a global downturn and gridlocked capital and bank markets, say lawyers specializing in the matter. “I think we’re going to see a large number of companies filing [for bankruptcy] this year,” Ronald Herscovici, a partner at Souza Cescon in Sao Paulo, speaking on the sidelines of a Mayer Brown restructuring conference held last week in New York. He believes that to date, based on anecdotal evidence, 2009 filings have already surpassed the number in 2008. The attorney says the new bankruptcy law in Brazil makes it more attractive for companies to file because it encourages the preservation of the concern, rather than pushing towards asset liquidation, as with the former law. “Also, negotiations with creditors have become much more complicated today [than during the last downturn] because companies now have a much larger number of creditors than they used to,” he adds. Borrowers today have to with deal with various groups of local and international bondholders, offshore and onshore banks, suppliers and other sources of credit, which makes having bilateral discussions cumbersome and inefficient. Other analysts say that derivatives will further complicate the process. A bankruptcy process adds order and transparency to the process, says Hercovisci. Bankruptcy experts predict that the largest number of filings will come from three main sectors in Brazil: sugar and ethanol, meatpacking, and homebuilding. In meatpacking alone, more than four companies, including Independencia, Arantes, Quatro Marcos and Frigoestrela, have already filed for protection from creditors.