A&O NY and Sao Paulo Finance Teams Achieve 100% Lender Recovery in Brazilian Restructuring
A&O NY and Sao Paulo finance teams recently achieved an outstanding result for our clients in the financial restructuring of an offshore drilling project, Alpha Star, owned by Queiroz Galvão (QGOG), one of the top three construction companies in Brazil.
Alpha Star (June 2017)
QGOG has been riddled with controversy ever since news of rampant corruption at Brazil’s state-run oil firm, Petrobras, broke nearly three years ago. As a result of those on-going criminal investigations and a drop off in charter pricing, QGOG and its subsidiary operating companies have experienced significant financial underperformance and have been renegotiating their debt terms with all of the various constituents in the company’s capital structure. Most recently, those efforts led to QGOG successfully pushing out the maturity of some USD700 million of senior unsecured notes in an exchange offer that was largely viewed as a major success for the company, while it remains to be seen whether the affected bondholders will achieve a full return of the principal amounts of their notes.
The Alpha Star lenders were approached with a similar company proposal that also attempted to extend the maturity of the facility without much benefit to the lender group. A&O was engaged by the agent to negotiate the restructuring on behalf of the Alpha Star lenders.
Judah Frogel, Bruno Soares and David Flechner and led a joint effort of the A&O NY and Sao Paulo finance teams in representing a 13 bank syndicate of project lenders under Alpha Star’s USD$575 million term loan facility.
With the Alpha Star facility set to mature on July 31, 2017 and a large bullet payment due at that time, the company sought to negotiate a maturity extension alongside its broader efforts to kick out the maturities of all of its debt (in excess of USD3.5 billion). The company approached the lenders in late April with a proposal that achieved the company’s objectives but which was unsatisfactory to the lenders.
Historically, in LatAm restructurings of this nature, creditors anticipate major write-downs, sometimes in excess of 50% of the principal amount owed. Given the overall complexity of the company’s capital structure and the company’s need to focus on extending as much of its maturity profile as possible, the Alpha Star lenders, together with the A&O team achieved an outstanding result: repayment in full at maturity from cash on hand of the company.
A&O’s continued advice to the lenders to stand firm and rely on their contractual rights resulted in the recovery of the full outstanding amount, a great result for the lenders. This matter serves as a good example of how standing firm and, when necessary, showing a willingness to exercise agreed upon contractual rights and remedies, can lead to a favourable outcome.
The A&O Team
The deal involved nearly 20 A&O timekeepers across 9 different teams and 5 offices.
As noted, the team was led by Partners Judah Frogel and Bruno Soares on the US and Brazilian leveraged finance side. Partner David Flechner advised on US Securities law matters and Partner Laura Hall advised on the US Litigation elements of the negotiations. Rounding out the teams in the US and Brazil were Senior Associate Livia Talenti and Associate Andre Teixeira. Partner David Lucking and associates Vinod Aravind and Oystein Lokken also assisted, providing key advice and insights relating to the interest rate swap documentation linked to the Alpha Star term loans.
Advice on bank regulatory issues was provided by Washington, D.C. Partner Bill Satchell and the Luxembourg law aspects of the transaction were reviewed and analyzed by Partner Pierre Schleimer, Counsel Thomas Berger and Associate Antoine Reillier. London-based Partner David Campbell, together with Associates Michael Cassone and Daisy Little, advised on the UK law collateral issues and documentation relating to the facility.