Odebrecht’s Restructuring and Related Consent Solicitation

Cleary Gottlieb Steen & Hamilton and E. Munhoz Advogados represented Odebrecht Engenharia e Construção S.A. in the deal, while Davis Polk and Pinheiro Neto advised an ad hoc group of holders of notes guaranteed by OEC and certain of its subsidiaries. Norton Rose Fulbright advised The Bank of NY Mellon on the transaction

Odebrecht Engenharia e Construção S.A (“OEC” or “the Company”), the construction services arm of the Odebrecht Group and Latin America’s second largest engineering and construction company, closed a complex restructuring (the “Restructuring”) and related consent solicitation (the “Consent Solicitation”) for approval of a Brazilian extrajudicial restructuring plan (the “EJ Plan”) to restructure OEC’s approximate U.S.$3.3 billion aggregate principal amount of notes issued by Odebrecht Finance Ltd. and guaranteed by OEC, among others (the “Existing Notes”). Over the past few years, OEC has been suffering liquidity constraints as a result of, among other factors, the implications and fines arising from the Car Wash Operation (Operação Lava-Jato) and the ongoing crisis related to the infrastructure, engineering and construction industries in the Company’s key markets. Cleary Gottlieb is also representing Odebrecht S.A., the parent company of the group, and certain of its subsidiaries in its Chapter 15 proceedings before the US Bankruptcy Court seeking recognition of its Brazilian judicial restructuring process.

The Consent Solicitation expired on July 31, 2020 with the support of more than 60% of holders of the Existing Notes and the EJ Plan is expected to be filed in the coming weeks. Restructuring negotiations for OEC began in December 2018 with an Ad Hoc Group of holders of over 40% of the principal amount of the Existing Notes. On June 13, 2020, OEC entered into a restructuring support agreement with the Ad Hoc Group, pursuant to which the Ad Hoc Group agreed to support the EJ Plan and the related Restructuring, and the Consent Solicitation was launched on June 15, 2020. The OEC Consent Solicitation represents the first time a wide solicitation was done in the international markets to solicit approval of a Brazilian extrajudicial plan, and this is the third time an extrajudicial restructuring plan is used to restructure bonds issued in the international markets. Cleary Gottlieb also worked in the prior extrajudicial plan for Odebrecht Oil and Gas – the oil and gas services subsidiary of the Odebrecht Group.

Under the terms of the Consent Solicitation and the EJ Plan, the Restructuring contemplates the release and cancellation of OEC’s and other guarantor’s obligations under the Existing Notes for a combination of (i) new series of Senior Unsecured Notes, each representing 45% of the sum of principal and unpaid interest through the effective date of the Restructuring of the corresponding Existing Notes, and (ii) a participatory debt instrument (the “Instrument”) to be issued by a new holding company that would entitle holders thereof to a share initially set at 50% of future distributions to be made by OEC. In addition to being one of the largest restructurings of a Brazilian company, the Restructuring involved a number of novel structures, particularly with respect to the mechanics for the solicitation of votes for the EJ Plan, the mechanics and structure of the Instrument, and the PIK interest provisions applicable under the new Senior Unsecured Notes. Cleary Gottlieb will also represent OEC in the Chapter 15 proceedings to seek recognition of the EJ Plan in the United States, once the EJ Plan is approved in Brazil.

On August 19, 2020, OEC filed an application for confirmation of its extrajudicial reorganization (“EJ”) plan with the São Paulo Bankruptcy and Reorganization Court to have its restructuring transactions approved in Brazil. The filing follows the successful completion of a consent solicitation through which holders of more than 73% of all outstanding notes consented to the restructuring.

The Restructuring started in December 2018 and culminated with a closing in January 2021.

The Cleary Gottlieb corporate team included partners Paco Cestero (Picture) and Rich Cooper; senior attorney Carina Wallance; associates Daniela Rios, Rita Sobral, and Luisa Galliez; and international lawyer Felipe Neves. Partner Jason Factor, senior attorney David Stewart Fisher, and associate Alexander Cadmus provided advice on tax matters. The Chapter 15 team included partner Luke Barefoot and associates John Veraja and Emmanuelle Berdugo.

In Brazil, E. Munhoz Advogados advised Odebrecht with Eduardo Secchi Munhoz, Felipe Ribeiro da Luz Camara, Ana Elisa Laquimia de Souza and Teresa Genta Lotufo.

The Davis Polk restructuring team included partner Timothy Graulich and associates David Schiff and Jarret Erickson. The corporate team included partner Manuel Garciadiaz, counsel Drew Glover and associates Rebecca L. Roman, Richard Corbett, Amanda Rae Schwarzenbart, and Amber Leary. Partners Antonio J. Perez-Marques and Tatiana R. Martins and associate Trishna Velamoor provided litigation advice. Partner William A. Curran and associate Joseph M. Gerstel are providing tax advice.

In Brazil, Pinheiro Neto advised the ad hoc group of bondholders with Giuliano Colombo, Fernando S. Dos Santos Zorzo, Thiago Braga Junqueira, Camila Carvalho Gomes and  João Guilherme Thiesi da Silva.

Norton Rose Fulbright advised The Bank of New York Mellon with Marian Baldwin Fuerst, Howard Seife,  Francisco Vazquez and Kyung Park.

Involved fees earner: Luke Barefoot – Cleary Gottlieb Steen & Hamilton; Emmanuelle Berdugo – Cleary Gottlieb Steen & Hamilton; Alexander Cadmus – Cleary Gottlieb Steen & Hamilton; Francisco Cestero – Cleary Gottlieb Steen & Hamilton; Felipe Costa Neves – Cleary Gottlieb Steen & Hamilton; Jason Factor – Cleary Gottlieb Steen & Hamilton; Luisa Franciss Galliez – Cleary Gottlieb Steen & Hamilton; Daniela Rios – Cleary Gottlieb Steen & Hamilton; Rita Sobral – Cleary Gottlieb Steen & Hamilton; David Stewart Fisher – Cleary Gottlieb Steen & Hamilton; John Veraja – Cleary Gottlieb Steen & Hamilton; Carina Wallance – Cleary Gottlieb Steen & Hamilton; Richard Corbett – Davis Polk & Wardwell; William Curran – Davis Polk & Wardwell; Jarret Erickson – Davis Polk & Wardwell; Manuel Garciadiaz – Davis Polk & Wardwell; Joseph Gerstel – Davis Polk & Wardwell; Drew Glover – Davis Polk & Wardwell; Timothy Graulich – Davis Polk & Wardwell; Amber Leary – Davis Polk & Wardwell; Tatiana Martins – Davis Polk & Wardwell; Antonio Perez-Marques – Davis Polk & Wardwell; Rebecca Roman – Davis Polk & Wardwell; David Schiff – Davis Polk & Wardwell; Amanda Rae Schwarzenbart – Davis Polk & Wardwell; Trishna Velamoor – Davis Polk & Wardwell; Teresa Genta Lotufo – E. Munhoz Advogados; Ana Elisa Laquimia – E. Munhoz Advogados; Felipe Ribeiro da Luz Camara – E. Munhoz Advogados; Eduardo Secchi Munhoz – E. Munhoz Advogados; Marian Baldwin Fuerst – Norton Rose Fulbright; Howard Seife – Norton Rose Fulbright; Francisco Vazquez – Norton Rose Fulbright; Thiago Braga Junqueira – Pinheiro Neto; Camila Carvalho Gomes – Pinheiro Neto; Giuliano Colombo – Pinheiro Neto; Fernando dos Santos Zorzo – Pinheiro Neto;

Law Firms: Cleary Gottlieb Steen & Hamilton; Davis Polk & Wardwell; E. Munhoz Advogados; Norton Rose Fulbright; Pinheiro Neto;

Clients: Bank of New York Mellon; Odebrecht Engenharia e Construção; Odebrecht Engenharia e Construção – ad hoc Group of Noteholders;

Author: Ambrogio Visconti.