Monday, 19 January 2009

DebtWire Releases Story About Arantes Bondholders. Things May Get Uglier ...

This is the text of a story by DebtWire reporters Ana Mano and Maria Fernanda Blaser. The Arantes bankruptcy filing two weeks ago is just the start of an ugly tale. Clearly at the heart of all this is the very weak corporate governance practices by many Brazilian companies that failed to disclose their debt and derivative positions to investors for quite a long time. This will have a negative impact in the way foreigners perceive Brazilian companies in general. Please read the story, it's quite interesting.

The bondholders of Arantes Alimentos have had their first meeting in New York this week to organize a strategy to collect USD 150m in claims against the Brazilian meatpacker, a source close to the investors told Debtwire.

One of the bondholders recommended a lawyer to a group of investors and the committee that is being formed is soon to issue mandates in the US and Brazil, the source said. Arantes filed for bankruptcy protection in the town of Nova Monte Verde, north of Mato Grosso state and close to the Amazon forest, after missing its first USD 8m coupon payment on 19 December. Holders of the 10.25% bond due in 2013 are disappointed with the company and at the banks that led the deal to market, the source said. Bondholders are claiming that "management lied" to investors regarding the closing of derivative contracts that triggered the bankruptcy filing. A lawsuit against the bond's underwriters for "lack of due diligence" is a possibility, the source said, referring to Credit Suisse and Santander, which declined to comment.

Legal action against the company in the US is also an option. Apart from structuring the bond, Credit Suisse and Santander also sold currency derivative contracts to Arantes "which the management of the company did not understand," the source close to the bondholders said. Food processor Sadia and pulp and paper producer Aracruz suffered the same fate despite having "more sophisticated" administrators, the source close to the bondholders and two analysts said. The exotic contracts had a multiplier component that worked against the company, but not against the banks, in case the BRL fell against the USD, the source close to the bondholders said. The USD surged 22% against the BRL in the fourth quarter.

In a November conference call, Arantes told investors in public it had closed all outstanding derivative contracts, the source said. Arantes had gross debt of BRL 1.5bn (USD 652m), lawyer Geraldo Gouveia Junior was quoted as saying by financial daily Valor Economico on 13 January but is now "forbidden" by the company to give more interviews, Arantes press officer Regina Antonelli said. The managers themselves were also unavailable for comment. At the end of the third quarter, the fallen meatpacker reported total debt of BRL 780m (USD 340m), 80% denominated in foreign currency. The undisclosed derivatives losses could explain part of the difference, the source close to the bondholders, two credit analysts and a banker close to the company said. Gouveia told Valor derivatives losses amounted to up to BRL 250m (USD 109m). Arantes third-quarter results were audited by Terco Grant Thornton, which noted the company hedged its foreign currency exposure with non-deliverable forward contracts. Based on information provided by Arantes, however, the auditors said on 25 November "they were unaware of relevant modifications that should be made in the financial statement for it to conform to Brazilian accounting norms." The auditors declined to comment for this report.

Arantes was the last of six Brazilian beef processors to successfully market a bond and had tried to sell a deal via Standard Bank in November of 2007. Eventually in June 2008 its debut bond was successfully issued by Credit Suisse, which still owns some of the securities, and Santander. In the last two months, there was a surge in trading in Arantes bonds, the source close to the bondholders said. Despite luring hedge funds in at about 11 cents, many original investors remain exposed to Arantes, the source said.

Among Brazilian banks, Bradesco is the largest creditor of Arantes with BRL 60m-70m (USD 26m-30m) in claims, a banker formerly close to Arantes said. Santander, in turn, is the largest individual creditor of Arantes with BRL 140m (USD 61m) in claims, most of which is unsecured, according to the same source. These figures do not include derivative-related losses "which will sooner or later appear," the source said.

1 comment:

  1. Hi,

    I found your article very revealing. I have Bonds Arantes, please can you give me a web address or the name of an office that would allow me to obtain information on developments in this case.
    my e mail is: pcinc@sympatico.ca

    I thank you in advance

    P/C

    ReplyDelete