Samarco in Notes Restructuring and Prepetition Pre-export Finance Facilities

September 1, 2023

Cleary Gottlieb is representing Samarco Mineração S.A. – Em Recuperação Judicial (Samarco), a privately held Brazilian mining company that was born out of a joint venture controlled in equal parts by Vale S.A. (Vale) and BHP Billiton Brasil Ltda. (BHP), in the restructuring of 5.375% notes due 2024, 5.75% notes due 2023, and 4.125% notes due 2022, and its prepetition pre-export finance facilities.

On May 31, 2023, following several weeks of negotiations with an ad hoc group of holders of more than 50% of the outstanding principal amount of the existing notes and the finance facilities, Samarco, Vale, BHP, and the ad hoc group entered into a restructuring support agreement. Pursuant to that agreement, the restructuring is being implemented through a consensual judicial reorganization plan, filed jointly by Samarco and certain of its creditors with the second Business State Court for the Belo Horizonte District of Minas Gerais on July 28, 2023. The consensual plan covers pre-petition claims of approximately $10 billion, including $3.3 billion in financial claims represented by the existing notes and the finance facilities. A sufficient number of creditor adhesion forms supporting the restructuring were filed alongside the consensual plan, obviating the need for a general meeting of creditors to approve the consensual plan; this is the first time that this procedure, which is the product of recent amendments to Brazilian bankruptcy law, is used by a debtor.

On September 1, 2023, the RJ Court issued an order confirming the consensual plan. In accordance with the terms of the RSA, Samarco will now seek recognition of the consensual plan by the U.S. Bankruptcy Court for the Southern District of New York. The consummation of the consensual plan is subject to agreement on definitive documentation and the satisfaction of certain closing conditions including, among other things, recognition of the consensual plan by the Bankruptcy Court. Pursuant to the consensual plan, Samarco will issue up to $3.57 billion (plus accrued interest as from July 1, 2023) of unsecured senior notes due 2031 to certain of its third-party financial creditors who elect to receive such new notes, in exchange for cancellation of their claims, at a ratio of 0.75:1 (subject to certain adjustments). The new notes will mature in June 2031; will bear interest at varying rates, ranging from 9% to 9.5%; and will be unsecured. Samarco may elect to pay interest in kind, in full through 2025 and in part in 2026 and 2027. Thereafter, all interest will be paid in cash. The new notes include a series of novel features, including a requirement of Samarco to use 50% of any excess proceeds to conduct a reverse Dutch auction to repurchase notes or prepay the notes. The remaining 50% can be used by Samarco for any purpose, including for the payment of dividends to Vale and BHP. Financial creditors can also elect a different treatment, involving a new loan facility maturing in 2035.

As part of the transaction, the consensual plan further provides that any agreements between Samarco and Brazilian public authorities in connection with the collapse of Samarco’s Fundão tailings dam in November 2015 shall be preserved in full force and effect, and the terms of the new notes allow the company to continue complying and transacting with respect to its remediation obligations and other obligations with public authorities. Between 2024 and full payment of the new notes, shareholders of Samarco are required to pay directly or fund the company in the form of common equity for Samarco’s remediation obligations in excess of $1 billion. The shareholders of Samarco also agreed to fund Samarco with $250 million in exchange for new notes in the same amount and to convert their pre-petition claims into a subordinated debt instrument due after 2035.

Following the collapse in November 2015, Samarco suspended its operations and committed to remediate the damages, which led to the company’s financial condition becoming critical and the need for the restructuring.

Since 2020, Cleary has continued to advise Samarco in various aspects of its restructuring process. This process has been highly litigated and has presented a series of novel legal issues, including the scope and effect of alternative plans of reorganization under the amendments to the Brazilian bankruptcy law, the obligations, and duties of creditors in rejecting reorganization plans presented by the debtors and the treatment of Samarco’s environmental remediation and reparation obligations and related shareholder contributions following the collapse.