Creditors vote today on Samarco's recovery plan.

After delays and reschedulings for the general assembly, Samarco's creditors expect to vote today (March 10, 2022) on the company's judicial reorganization plan, sources close to the creditors said. Financial creditors, Valor learned, will vote against the approval of the judicial reorganization plan presented by Samarco. The company's partners, Vale and BHP Bill, which are also creditors of the company, do not vote in this assembly.

Samarco's judicial reorganization involves a debt of R$ 50.5 billion, of which R$ 24.1 billion is owed to shareholders and R$ 26.4 billion to financial institutions, funds that purchased the company's debt securities at a discount. This group hired Tito Martins, former president of Nexa (Votorantim group), to develop an alternative recovery plan for the mining company.

“If a new plan is not presented [by Samarco], creditors can vote against it and present their own plan to try to make the judicial reorganization more equitable,” said a source. Legislation allows creditors to present and vote on an alternative judicial reorganization plan before a company is declared bankrupt, should the original plan presented by the company be rejected by the creditors.

Two weeks ago, after the assembly was suspended due to lack of quorum, Samarco presented a new recovery plan to the court for creditor evaluation. The initial proposal included an 85% debt reduction, payable in 2041, or the conversion of the debt into equity in the company.

The new proposal foresees the repayment of the debt in 2041, with a 75% discount, or the exchange of the debt for preferred shares and senior notes, maturing in seven years and yielding 6.5% per year. The bonds would have a firm guarantee from BHP and Vale. There is also the option of issuing “junior notes” totaling US$700 million, maturing in 14 years and yielding 7.5% per year.

The new proposal was also rejected by financial creditors, according to an objection to the plan submitted to the court on Monday. In the document, the financial creditors argue that, despite Samarco having obtained double the time allowed by law to negotiate the recovery plan with creditors, the company and its controlling shareholders Vale and BHP...

They did not choose that path. The creditors state in the document that the total debt discount proposed by Samarco is 96.8% for unsecured creditors, which they consider "abusive".

Sources close to Samarco disagree. They say the company has made three different proposals to creditors since December, with consecutive improvements, but none have been accepted by the financial creditors. The credit recovery level, according to the company's latest proposal, would be 30%, a source said. For every dollar spent, creditors would recover 30 cents.

In the market, Samarco's debt securities are worth 0.45 cents per dollar, but they lack liquidity. According to sources, the funds want to recover 100% of the credit, which will lead to a lengthy legal battle over the recovery process.

“We are looking for a solution that allows Samarco to continue operating and survive, but the funds want to break the company,” said a source linked to the company. If Samarco's plan is rejected today, creditors must present another plan in a short period of time and, in this second phase, Vale and BHP will say that, as creditors, they want to vote for it.

Although Samarco is operationally viable, the weight of its debt casts doubt on the company's future if this liability is not restructured. Samarco, which was once the world's largest producer of iron ore pellets, produced up to 30 million tons per year. Today it has the capacity to produce 7 million tons annually.

The company's entire problem began with the collapse of the Fundão dam in Mariana (MG), on November 5, 2015, in one of the biggest socio-environmental tragedies in the country's history. Since then, Samarco has been struggling to recover and, since filing for bankruptcy protection in 2021, has been waging a battle against creditors who bought its debt securities on the secondary market.

The alternative proposal seeks to make creditors partners in Samarco, but without political rights, "so that the credits are paid through eventual, future and uncertain dividend distributions, which may never occur," says the document questioning Samarco's plan. This is because the company has accumulated losses of US$55 billion.

and is prohibited from distributing dividends. And there is no way to predict when the company will be able to resume paying dividends.

Creditors are also questioning Samarco's proposal to issue new debt of US$1.4 billion, without detailing how the funds will be used. The document was sent by representatives of funds such as Golden Tree, Moneda, Oaktree, and Maple Rock. Bondholder groups are represented by law firms.

Padis Mattar Advogados, Ferro, Castro Neves (FCDG) and Davis Polk. The investment bank Houlihan Lokey also advises the international creditors.

Samarco is represented by JPMorgan, Vale by Moelis & Co, and BHP by Rothschild & Co.

Source: "Creditors vote today on Samarco's recovery plan". Valor Econômico. Accessed on 10/03/2022. To access the website click here .