Odebrecht in Complex Restructuring and Related Consent Solicitation

Cleary Gottlieb represented Odebrecht Engenharia e Construção S.A. (OEC) in a complex restructuring and related consent solicitation for approval of a Brazilian extrajudicial restructuring plan to restructure OEC’s approximate $3.3 billion aggregate principal amount of notes issued by Odebrecht Finance Ltd. and guaranteed by OEC, among others.

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 is also representing Odebrecht S.A., the parent company of the group, and certain of its subsidiaries in its Chapter 15 proceedings before the U.S. 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 has been used to restructure bonds issued in the international markets. Cleary 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 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 a participatory debt 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 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.

OEC is the construction services arm of the Odebrecht Group and Latin America’s second-largest engineering and construction company.