Tonon creditors face large haircut from sale of mills

by Aline Lima

A potential purchase offer for Tonon Bioernergia’s (D) two mills, the centerpiece of the first option in its restructuring plan, will likely imply a large haircut for creditors, according to two sources close to the matter and a source familiar.

The Brazilian sugar and ethanol producer has been in talks to potentially sell Raizen Energia (BBB-/BBB) its Santa Candida and Paraiso mills, located in the state of Sao Paulo.

“In previous discussions with other companies, Raizen has expressed interest in buying mills for USD 30-USD 35 [per ton of crushing capacity – a multiple commonly used in the industry],” the source familiar said. “That is the value they [Raizen] consider worth to invest.”

The average price for potential acquisitions is around USD 30-USD 60 per ton of sugarcane crushing capacity, as reported.

Last year, Glencore offered USD 40 per ton for Unialco Alcool e Acucar, the first source close noted, outbidding Cosan‘s Raizen joint venture.

“The [offer] price has to be very high for the haircut to not be so massive,” the first source close said.

“Maybe Raizen offers a little more [than the USD 30-USD 35 per ton] to convince bondholders to accept [the proposal],” the source familiar said – noting that USD 40 per ton would imply a 73% haircut for Tonon’s creditors.

However, bondholders would not be inclined to accept an offer below USD 60 per ton, considering the level in which Tonon’s bonds are being traded, according to a third source close to the matter.

Tonon’s USD 230m 10.5% senior secured notes due 2024 was last bid at 35.

Even with unsecured bondholders showing no appetite for running a sugar and ethanol company in Brazil, a poor proposal would lead them to opt for exchange their debt for equity – under the other option in Tonon’s plan – while searching for another acquisition proposal, the third source close said.

Under this second option, secured creditors would have a 5.02% discount applied and be repaid in May 2024. Their credit would be remunerated semi-annually at a 10.5% fixed rate.

Tonon’s creditor assembly has been scheduled for 22 February.

Its total indebtedness was USD 1.46bn, of which USD 1.21bn was classified as unsecured, according to the most recent creditor list.

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