A Sao Paulo court dealt a setback to petrochemical producer Braskem's debt overhaul, lifting creditor protections for two financing subsidiaries, blocking additional support for Mexican affiliate Braskem Idesa's Chapter 11 process and appointing a judicial administrator.
In a 24 September ruling, the 2nd Bankruptcy and Judicial Reorganization Court of Sao Paulo rejected the debtors' attempt to calculate creditor support through substantive consolidation, requiring support levels to be assessed individually for each entity.
The Brazilian court found that Braskem Netherlands and Braskem America Finance failed to meet the minimum one-third creditor support threshold required under Brazil's bankruptcy law. Creditor support reached 20.4pc for Braskem Netherlands and 13.2pc for Braskem America Finance, below the statutory 33.3pc requirement.
As a result, the stay period was lifted for the two entities, and the debtors were ordered to demonstrate compliance within 15 days or propose alternative measures.
The ruling also addressed Braskem's planned support for Braskem Idesa, which recently sought Chapter 11 protection in the US Bankruptcy Court for the Southern District of Texas. An ad hoc group of creditors argued that Braskem and affiliated entities have committed up to $800mn to the Mexican process, including a $415mn debtor-in-possession financing facility, a $71mn equity contribution and additional obligations tied to future ownership interests.
The court granted a precautionary injunction preventing Braskem and the restructuring entities from making further extraordinary payments, transfers, financing disbursements or equity contributions linked to the Mexican process pending further review. The judge said the transactions could materially affect the financial position of the group's debt overhaul.
The decision came one day after Shine I FIP launched a mandatory tender offer for minority shares of Braskem, one of the final regulatory steps following the fund's acquisition of control of the company. The offer does not affect control of Braskem but is intended to complete the ownership transition.
Braskem must submit within 15 days a report detailing the structure, funding sources and expected impacts of the Braskem Idesa transaction. The court also requested information from controlling shareholders Petroleo Brasileiro (Petrobras) and Shine I Fundo de Investimento em Participacoes (Shine I FIP) regarding corporate approvals.
Separately, the court appointed ACFB Administracao Judicial as judicial administrator, citing the complexity of a case involving six entities and roughly $10.9bn in liabilities.
