Mexican homebuilder Corporación Geo carried out one of the most challenging restructuring processes in Mexico and Latin America during the awards period, cutting its debt by 34 billion pesos ($2.6 billion) and reaching an agreement with a substantial portion of its more than ten thousand creditors, including banks, bondholders and suppliers. To execute the deal, it made use of a new legal framework for restructuring that allowed the company to streamline the process with a pre-packaged approach. Other Mexican homebuilders Homex and Urbi entered the same restructuring process after Geo blazed the trail.

“Geo was a pioneer in various aspects of the new Concurso law, including Mexico’s first ever DIP financing [Debtor in Possession], a critical factor in providing the company liquidity during this restructuring process,” Daniel Nicolaievsky, managing director at Rothschild tells LatinFinance.

Corporación Geo, along with fifteen of its subsidiaries, entered concurso mercantil — a process similar to Chapter 11 in the US — in April 2014, with a combined debt of around 59 billion pesos ($4.5 billion). The company initiated the process roughly three months after Mexico made a comprehensive set of changes to its commercial bankruptcy law. The January 2014 legislation allowed for a single judge to arbitrate the restructuring of the 16 entities, a significant and positive change from the former rules that would likely have required separate proceedings for each firm.

The judge appointed Thomas Heather, partner at Mexican legal firm Ritch Mueller as conciliator. His role was to liaise with the court, and to oversee, approve and report any financial move made by the company’s management as debtor in possession, including selling assets, using cash for operations, and borrowing.

Geo was the first entity in Mexico to use a prepackaged restructuring under the new law. In the past, conciliators could use pre-packs, which are typically negotiated out of court between the borrower and creditors, as references for devising the ultimate restructuring plan. Under the latest legislation, however, the conciliator is required to present the exact pre-pack plan to the judge for approval, saving time and reducing uncertainty for all parties. To produce a viable pre-pack, Geo needed to reach agreements with more than 50% of its creditors, including banks, bondholders and suppliers.

Shareholders in May agreed to the plan, which diluted the equity holders dramatically, handing 88% of the company to unsecured creditors. Existing shareholders were left with just 8% of the company, while management took the remaining 4%. A further capitalization was planned once Geo had left the concurso.

“The financial plan required to exit the concurso was only achieved thanks to active collaboration and communication among all the parties. Without it, this positive outcome wouldn’t have been possible,” Javier Castro, chief executive at Esencia Capital, tells LatinFinance.

The government’s role as a subsidy provider, mortgage lender, regulator and a major creditor through the Sociedad Hipotecaria Federal (SHF) and through Mexican real estate lender Infonavit, made its support crucial to Geo’s restructuring. SHF and Infonavit provided a 123 million and 350 million peso credit lines, respectively, after Geo exited concurso. “The government had a vested interest in a positive outcome for our process,” says Orlando Loera, chief restructuring officer at Geo. “It would set a precedent for the new law, and it would help a company with a very important social mandate which is the construction of housing for low-income sectors.”

Geo’s last subsidiary exited the concurso at the end of June 2015. A final step in Geo’s restructuring came in November, when Sólida, an affiliate of Grupo Financiero Banorte, and Mexico City-based real estate fund Capital Inmobilario, agreed to inject 3.5 billion pesos in exchange for an 83.8% stake in the company. The capitalization left the senior unsecured creditors with a 14.2% stake, original shareholders kept 1.3% of shares, and previous management with 0.6%.

The capital injection was disbursed on December 15, and by the next day the company was relisted in the Mexican stock exchange. LF

WINNER: Corporación Geo

Issuer: Corporación Geo

Finance Type/Size: MXN59bn ($4.5bn) Concurso Mercantil

Supporting Banks: Esencia Capital, Houlihan Lokey, Rothschild, Banorte, BBVA Bancomer, Prudential

Law Firms: Ritch Mueller, Cleary Gottlieb, Santamarina y Steta, Shearman & Sterling, Cervantes Sainz, DLA Piper