Sete Brasil to present recovery plan without completed Petrobras agreement

27 July 2016

by Lucy Monteiro, and Fabiana Lopes

 

Sete Brasil is planning to present its restructuring plan in August, without having yet reached any agreement with Petrobras regarding rig contracts, according to two sources close to the matter. The plan will feature a proposal for creditors based on the assumption of successful negotiations with Petrobras, but which can be altered depending on the outcome of the negotiations. Discussions are still far from a settlement, the two sources said.

 

Sete Brasil and Petrobras have been involved in an extrajudicial mediation to decide the number of rigs the Brazilian state-controlled oil Company is going to lease. Sete Brasil was created in 2011 to build the world’s largest deep-water drilling fleet for Petrobras, its only client. Petrobras at first had 28 15-year charter agreements signed with Sete Brasil, but later proposed to lease only 10 charters for five years, and renewable for another five, but this number is still under discussion.

 

“The negotiations are far from reaching an agreement regarding the number of rigs to be contracted by Petrobras,” the first source said. “So, Sete will have to stablish a scenario to elaborate a plan and put a disclaimer, that if the scenario changes, the expected cash flow and repayment proposals will also be altered.”

 

The exact number of rig contracts to be used as a premise for this scenario is being studied by the company, the first source said. Neither source was able to comment on the number of rig contracts that Sete would end up with in a “successful” scenario.

 

Sete Brasil and Petrobras are still talking with the mediator and making adjustments to the mediation terms, according to the second source. Both parties are clarifying their positions before starting the core negotiations, the source said.

 

The mediation between the two parties has been led by Luis Leonardo Cantidiano, partner at Motta Fernandes Rocha Advogados and former president of Brazil’s Comissao de Valores Mobiliarios (CVM) securities regulator.

 

According to the second source, it is very difficult to estimate how long the discussions will last. “Everything will depend on how fast Petrobras wants to resolve the situation. This discussion could be a battle,” the second source said.

 

As there is not an agreement with Petrobras, the plan that Sete Brasil will present in August will bring the best possible scenario, the one which brings the best potential of recovery to the creditors, this source said.

 

“The company’s lawyers are still working on the document and shareholders are still talking about the plan’s conditions,” the second source said.

 

It was not clear if Sete Brasil would take into account calendar days or business days in determining the deadline to present its restructuring plan to creditors. According to Brazilian bankruptcy law, after the filing is accepted by court, a company has to present a restructuring plan within 60 days. However, after the new Civil Procedure Code came into effect on 17 March, it is not clear if the deadline takes into account calendar days or business days. In the case of Sete Brasil, counting calendar days would mean the deadline is on 16 August, but the deadline would be 8 September if business days are used.

 

According to the first source, as this matter is not clear, the company decided to be conservative and take into account the calendar days.

 

Sete Brasil requested bankruptcy protection in Rio de Janeiro on 29 April. The request included Sete Brasil Participacoes, Sete Investimentos I, Sete Investimentos II, Sete Holding GmbH, Sete International One GmbH and Sete International Two GmbH. However, the judge responsible for the case approved the request only for the group’s Brazilian companies, excluding those based in Austria. Sete Brasil is challenging this decision.

 

At the time of its bankruptcy filing, the company’s total debt was BRL 19.3bn (USD 5.87bn), of which BRL 12.6bn was unsecured and BRL 6.7bn secured, according to the creditors list filed by the company.

 

Alvarez & Marsal and the law firm Sergio Bermudes are advising the company.

 

Sete Brasil did not respond to a request for a comment. Representatives of the advisors and the mediator Luis Leonardo Cantidiano declined to comment on the matter.