Vale-BHP ore venture overhauls $10bn restructuring proposal

25th February 2022

By: Bloomberg


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Samarco Mineracao, an iron-ore producer jointly owned by Vale and BHP Group, presented a new plan to restructure its 50-billion reais ($10-billion) in defaulted debt in an effort to gain support from creditors.

Samarco, which filed for bankruptcy protection in April 2021, will continue to offer creditors two alternatives: a debt-for-equity swap or an inflation-linked bond with a 75% haircut, maturing in 2041. But it now proposes a cap of $2.4-billion in payments for repairs from a deadly dam disaster that happened in 2015, in Mariana, Minas Gerais, according to a court filing. The remaining $3.1-billion Samarco estimates will be necessary for the repairs would be payed by Vale and BHP, which would then hold Samarco debt subordinated to any other equity or liability instrument.

In addition, a capital injection in Samarco by Vale and BHP after the bankruptcy protection period began -- estimated at more than $2 billion through the end of the process -- would be converted to preferred shares, the same as the ones offered in the debt-to-equity swap. Until now, Samarco only had ordinary voting shares, and the preferred ones would receive 1 000-fold more in dividends than the ordinary ones.

Under the new proposal, Samarco would need a capital injection of $1.4-billion, of which $700-million would come from the issuance of preferred shares and another $700 million would come from a debtor-in-possession financing with a 7-year maturity and interest rates of up to 7.5%. Vale, BHP and creditors would be able to participate in this injection, and those participating would be able to convert up to $700-million of old debt into a new security maturing in 14 years with interest rates of up to 6.5%, to be payed after the DIP.

The previous proposal was rejected by creditors in court documents in July last year, and, even after a round of negotiations and a few changes, the ad hoc group of bondholders said it was “offensive". A meeting to vote on the restructuring plan was postponed on Wednesday, and a new one is scheduled to happen on March 10. Samarco’s most traded defaulted bonds that mature in November 2022 are trading at 56.7 cents on the dollar.

In a December statement, a group of major Samarco creditors said they will present an alternative restructuring plan for the mining company, that will include a new controlling shareholder group to take control after its approval. The group is working with Tito Martins, former CFO from Vale and former CEO of Nexa Resources, according to a statement on Tuesday.

Samarco has been struggling to pay its debt after the dam disaster halted operations in 2015. The firm resumed part of its production in December 2020.

In its bankruptcy protection filing, Samarco included 23-billion reais it owes to Vale and BHP for credit lines the two companies extended to pay for reparations for the disaster and to fund operations. Investment funds and banks hold another 26 billion reais of Samarco debt, including bonds and loans. Creditors and shareholders would get equal treatment according to Samarco’s debt restructuring proposal.

Edited by Bloomberg


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