Brazilian Cancer Treatment Group Seeks Out-of-court Deal As "Lower Risk" EJ Becomes A Trend

A Brazilian oncology treatment provider with liabilities worth almost US$1 billion has commenced an extrajudicial reorganisation, continuing the slew of Brazilian companies choosing to restructure large debt piles out-of-court – a trend that one Brazilian lawyer tells GRR is here to stay.

Brazil’s Oncoclínicas, one of the largest providers of clinical oncology treatment in Brazil, with more than 140 units in 49 cities, filed a petition for an out-of-court restructuring to renegotiate about 5.1 billion reais ($993.8 million) in unsecured debt on 13 July.

According to a company filing with Brazil’s Securities and Exchange Commission dated 14 July, Oncoclínicas has already received approval from approximately 37% of its affected creditors for an EJ plan, as well as unanimous approval for the filing by its board of directors.

Under Brazilian bankruptcy law, the company now has 90 days to obtain the minimum percentage of creditor approval to get judicial ratification, which is 50%.

Oncoclínicas is the latest in a series of Brazilian companies that have restructured

large debt piles through the out-of-court EJ process.

In March, Brazilian sugar and ethanol group Raizen commenced an extrajudicial

reorganisation to restructure around R$65.1 billion (US$12.55 billion) in unsecured

financial debt and R$33.5 billion (US$6.46 billion) in intercompany obligations, in

what local lawyers told GRR was the largest out-of-court restructuring in Brazil’s

history.

Raizen subsequently filed for Chapter 15 recognition of the EJ proceedings in the US Bankruptcy Court for the Southern District of New York, and secured full recognition of the process on 7 April.

Brazilian supermarket chain Companhia Brasileira de Distribuição (GPA) also opted for an out-of-court process to restructure unsecured debts totalling around R$4.5 billion (US$860 million) earlier this year.

According to Mayer Brown partner Liv Machado in São Paulo, the trend of using EJs is one the Brazilian restructuring market can expect to continue.

Compared to the judicial reorganisation process, the EJ – which she describes as Brazil’s equivalent to the US’s Chapter 11 – is “less costly, time-consuming, and the risks involved are lower for the debtor,” she tells GRR.

Unlike the JR, there is no judicial administrator, “no creditor meetings and no risk of

having a liquidator decree or an alternative plan filed by a creditor,” she adds.

Another difference that makes the process more favourable than the RJ process, Machado says, is that in a recuperação extrajudicial, it’s the “negotiations that set the tone” while in a recuperação judicial (RJ), “the judiciary plays a major role and may interfere more”.

Reuters reported this week that 33 Brazilian debtors had filed EJ processes since the start of this year.

Oncoclínicas initiated discussions with its financial creditors in March, after it became clear it would fail to meet upcoming payment deadlines. A month later, it filed for precautionary relief before the São Paulo Court of Justice, seeking temporary protection from creditor enforcement actions.

The company’s restructuring plan, which is still being negotiated, could include a recapitalisation by its shareholders, the conversion of a portion of its covered claims into equity interests and replacement of other covered claims with new debt, aswell as certain maturity extensions, it said in the 14 July stock exchange filing. It also said the plan will not affect its operational obligations, which will continue without interruption.

TWK Advogados partners Ivo Waisberg and Lucas Carmo are representing the company in the EJ talks.

One of the reasons the oncology treatment provider has cited for its financial distress is its link to recently-collapsed Banco Master, the Brazilian bank owned by convicted fraudster Daniel Vorcaro.

Oncoclínicas held a total of 430 million reais in certificates of deposit in the bank. According to Brazilian news outlet The Rio Times, Banco Master also held a 20% stake in the company.

To read complete article visit Global Restructuring Review