by Lulu Rumsey  

Brazilian insolvency boutique E Munhoz Advogados has helped Brazil´s second largest real estate company, PDG Realty, restructure more than four billion reais (US$1.2 billion) worth of debt with its major creditors.

Heavily indebted PDG restructured debt it owes Banco Bradesco, Banco do Brasil, Caixa Econômica Federal and Itaú Unibanco. The banks hired Machado, Meyer, Sendacz e Opice Advogados for the deal, which covers up to 60 per cent of PDG’s gross financial debt.

PDG and its creditors agreed to a four-year extension of the maturity dates of all the company´s outstanding corporate debt, as well as a year-long extension of the maturity dates of all bank loans related to real estate construction projects. Debtor and creditors also signed up for the banks to provide new disbursements for the construction of projects they had already begun financing, and new financing for PDG´s general and administrative expenses.

The new financing will be released by creditors on condition of PDG repaying its principal debt. For every US$1 PDG repays, US$0.2 will be returned by the banks. "This structure creates an incentive for the banks to keep funding PDG´s operations while the company continues generating revenue, paying outstanding debts and reducing the bank´s exposure," says E Munhoz partner João Vicente Lapa de Carvalho.

PDG announced it had executed the final definitive and binding agreements necessary to implement its debt restructuring with the banks on 10 August.

The restructuring breaks new ground in Brazil´s real estate sector. "There were very few out-of-court restructurings in the Brazilian real estate sector in the past," explains Carvalho. No previous extra-judicial debt restructuring by a real estate company in Brazil has included such a long extension of maturity dates, or a commitment by banks and shareholders for new financing, he explains. 

The deal is the result of year-long negotiations. Carvalho says talks dragged on because banks were initially reluctant to accept the terms and conditions of the restructuring. At first, both parties contemplated a judicial restructuring, but banks were put off by the fact that the fiduciary guarantees over receivables, shares and real estate that secured their credit would, under Brazilian law, not be subject to an in-court proceeding. "The banks were also sceptical about increasing their exposure to PDG´s risk and strongly resisted securing new financing given PDG´s financial condition," he explains. "The uncertainty of the Brazilian economy and the political backdrop also played a major role in spurring banks´ scepticism." Eventually, all parties agreed that an out-of-court option would be mutually beneficial.

The deal comes eight months after PDG agreed to sell 464 million reais (US$144 million) worth of assets to another creditor, Banco Votorantim, in a bid to ease its debt load.

Brazil´s real estate sector has faced severe challenges since 2014. Real estate companies are facing declining sales volumes, leading property prices to plummet. Companies have also seen new financing become increasingly expensive, while consumers have struggled to keep up with repayment schedules, compromising companies´ income.

Out-of-court debt restructurings can be an attractive option for creditors and debtors reluctant to pursue a costly and lengthy court-supervised restructuring. Last month, the sugar and alcohol division of Latin America´s largest construction company, Odebrecht, reached an 11 billion reais (US$3.4 billion) deal with its creditors, one of the largest out-of-court restructurings to take place in Brazil. Both E Munhoz and Machado Meyer were called upon for that deal, advising debtor and creditors respectively.

Counsel to PDG Realty

In-house counsel - Natalia Pires

E Munhoz Advogados

Partners Eduardo Secchi Munhoz, Ferdinando Lunardi, João Vicente Lapa de Carvalho and Ana Gonçalves

Counsel to Banco Bradesco, Banco do Brasil, Caixa Econômica Federal and Itaú Unibanco

Machado, Meyer, Sendacz e Opice Advogados

Partner Renato Ribeiro Maggio and associates Rafael Capelão Carretero and Fernando Becker Mau

(Latin Lawyer - 23.08.2016)

(Notícia na íntegra)