Tuesday, 3 March 2009

Independencia in Trouble; Second Meat Company in Brazil to Face Worrisome Credit Events

Independencia Alimentos, which not long ago sought state financing aid from state development bank BNDES (Brazil's equivalent to a hospital of ailing companies) last week filed for reorganization proceedings under Brazil's bankruptcy law. The company stopped operating last week (we apologise for not having written about it, but the work burden has been absurd these days!) Under the bankruptcy-like filing, Independencia must submit a reorganization plan within 60 days, and once a regional court accepts the case all actions and claims -- except for certain secured creditors -- are subject to a 180-day stay.

Although Brazil's corporate sector is far from facing a systemic crisis, domestic bankruptcy filings soared 146 percent last year -- especially during the last four months. In industries such as food processing, which for years benefited from strong external demand and easy credit (most these companies sold billions of dollars in bonds since 2005,) defaults will continue to rise. Refinancing and non-payment risk will probably be more concentrated on the ethanol, food processing and agribusiness sectors, investors in the corporate bond market told us recently. Three ethanol distillers filed for protection in the past six months. Meatpackers, poultry producers and other food manufacturers will see consolidation through mergers and acquisitions, some of them state-sponsored as the BNDES seeks to avert foreign takeovers of some of these ailing companies.

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