Tonon’s Judicial Restructuring of Debt

July 14, 2017

Cleary Gottlieb represented an ad hoc group of a majority of unsecured and secured bondholders and certain lenders of Tonon Bioenergia S.A. in its restructuring pursuant to Brazilian judicial reorganization proceedings.

Tonon and several of its affiliates filed for judicial reorganization in Brazil in December 2015. After more than a year of negotiations among Tonon, its creditors and other interested parties, a reorganization plan was approved by creditors and confirmed by the restructuring court in April 2017. The total value of Tonon’s debt at the time of approval of its restructuring plan was in excess of $900 million.

The plan contemplates an auction of Tonon’s two principal assets, after which creditors would elect among two possible options. Under the first option, two of Tonon’s three sugar cane processing mills would be sold pursuant to the auction, free and clear of any liabilities, under a specific provision of Brazilian bankruptcy law, with proceeds of the sale distributed to creditors pursuant to a waterfall set forth in the restructuring plan. Any deficiency claims, after distribution under the waterfall, would be partially reinstated in the form of a bond, secured by Tonon’s remaining mill as collateral. Under the second option, the auction would be abandoned and unsecured creditors would capitalize their claims into equity of Tonon, while secured creditors would receive a mix of reinstated debt and equity. In the aggregate, creditors would then hold substantially all of Tonon’s equity.

In June 2017, upon receiving bids in the auction, creditors approved a bid from Raizen, a joint venture between Cosan and Shell, in the amount of R$823 million ($250 million), subject to certain modifications to the bid to conform to the agreed bidding requirements. On July 7, 2017, Raizen resubmitted a conforming bid.

Cleary worked to advise the ad hoc group on all matters related to the restructuring, together with Brazilian co-counsel, Stocche Forbes and financial advisor, Moelis & Company, successfully guiding the ad hoc group and Tonon to a negotiated solution that was eventually approved by over 90 percent of the creditors that participated in Tonon’s general meeting of creditors.

Tonon is a Brazilian sugar, ethanol and energy producer with operations in the Southeast and Midwest regions of Brazil. Cleary Gottlieb previously advised a group of unsecured bondholders and providers of new financing to Tonon in a voluntary restructuring and exchange offer in mid-2015.