Summary: Braskem SA experienced a share price decline after news emerged that the petrochemicals producer is pursuing creditor support to begin an out-of-court restructuring process ahead of debt payments scheduled for July. The company is reported to be preparing to use Brazil's extra-judicial restructuring framework once it has backing from holders of at least one third of its outstanding debt, a threshold that would allow a 90-day standstill on payments.
Shares of the company fell 2.6% following disclosure of the plan to solicit creditor agreement. Those familiar with the situation say Braskem intends to enter the out-of-court process with the broad contours of a restructuring already agreed with certain groups of bondholders and banks.
Under the reported approach, obtaining support from creditors holding one third of the debt would permit Braskem to secure a 90-day pause on debt payments. During that period the company would aim to build additional backing from creditors representing a majority of the debt, which is required to vote in favor of and approve a final restructuring plan.
Sources indicate that, although the extra-judicial route is the current focus, seeking court protection through a precautionary measure remains an option. That alternative was noted as a possibility by some people familiar with the company's deliberations.
The company is therefore pursuing a two-step path: first, obtain sufficient support to qualify for the extra-judicial mechanism and the associated temporary payment suspension; second, use the standstill period to expand creditor support to the majority needed to finalize a restructuring agreement. The plan as described would rely on pre-arranged, broad terms agreed with select bondholder and bank groups as a starting point for wider creditor negotiations.
This development is concentrated on the company's debt timetable and creditor negotiations, and reflects an effort to manage near-term payment obligations through a structured, time-limited procedure if the required creditor thresholds are met. Market participants reacted with a modest decline in the stock price following the reports.
Key points
- Braskem shares fell 2.6% after reports that the company is lining up creditor support for an out-of-court restructuring ahead of debt payments due in July.
- The company is considering use of Brazil's extra-judicial restructuring framework once it has support from holders of at least one third of its debt, which would allow a 90-day standstill on payments.
- During the 90-day standstill Braskem would seek approval from creditors representing a majority of the debt to finalize a restructuring plan; pursuing court protection remains a possible alternative.
Sectors affected: petrochemicals, credit markets, bondholders and banking counterparties.
Risks and uncertainties
- There is uncertainty whether Braskem will secure the support from holders of one third of its debt necessary to trigger the 90-day standstill - this affects creditor negotiations and the company’s near-term liquidity management, with implications for the credit markets and lenders.
- Even if a standstill is obtained, the company must persuade creditors representing a majority of the debt to approve a final restructuring plan within the 90-day window - a failure to do so would leave the final outcome uncertain and could prompt alternative legal measures that impact banks and bondholders.
- The option to seek court protection through a precautionary measure introduces an alternative path whose timing and terms are not detailed in the reports, creating an additional source of uncertainty for stakeholders in the petrochemicals and financing sectors.