20 de octubre de 2014 / 19:49 / en 3 años

CORRECTED-Brazil's GVO bonds sink on restructuring fears

(Corrects 12th paragraph to clarify role of oil subsidies)

By Davide Scigliuzzo

NEW YORK, Oct 20 (IFR) - Grupo Virgolino de Oliveira (GVO) bonds slid deeper into distressed territory Monday as the cash-strapped Brazilian sugar and ethanol giant gets pushed closer toward debt restructuring.

GVO’s unsecured notes, the 10.5% US$300m 2018s and 11.75% US$300m 2022s, were trading at just 20 cents to the dollar after the company appointed legal and financial advisors and said it was taking steps to strengthen its capital structure.

The unsecured bonds had already plunged by more than 30 points last week as fears of a restructuring intensified.

GVO’s 10.875% US$135m secured notes maturing in 2020, issued just four months ago, were quoted at a bid-offer cash price of 35-45, a trader said - having been halved in value in a week.

“The group is engaging in close discussions and negotiations with potential new and current investors, as well as discussing with its creditors alternatives for its capital structure,” the company said in a statement released Sunday.

“With these measures, the group is confident that it will be able to face the difficult period which the sector is going through, thereby continuing its century-old story of success.”

The trader said the bondholders and company would likely do all they can to keep the business as a going concern and avoid a long drawn-out bankruptcy.

“But they need cash,” the trader said. “And who is going to put up the cash?”

Either an equity injection from shareholders or a loan from new investors could be viable options, though the latter could put the existing bonds under more pressure.

This is because any new debt would most likely be more senior in the capital structure, the trader said.

“Whoever does that is going to ask for the world - and everyone would need to agree it,” he told IFR.


The sugar and ethanol sector has been hit hard in recent years by both the steady decline of sugar prices and the Brazilian government’s oil subsidies, which make ethanol less competitive.

Only a small number of firms with larger cash buffers have been more resilient.

Tonon’s unsecured 2020s and secured 2024 notes were trading at cash prices of around 80 and 92 respectively on Monday, for example, while USJ’s unsecured 2019s were quoted at around 90.

“Tonon and USJ have enough cash to get through this cycle, but we are not seeing a big rebound in sugar prices - and they all need that to be able to survive,” the trader said.

Some pin hopes for a turnaround in the sector to opposition candidate Aecio Neves, who faces incumbent President Dilma Rousseff in a run-off election this weekend.

Neves has pledged a number of reforms in the oil and gas sector, including raising heavily subsidized fuel prices, which would make ethanol more competitive at the pump.

“It’s a travesty what’s happening in the sector,” said a syndicate official at a Brazilian bank, who argued a Neves victory would provide a much-needed boost for the industry.

Rating agencies had praised GVO for steps it took over the summer to increase its liquidity position and smooth out its maturity profile. All three main agencies affirming their ratings on the company in August.

It is rated B3 with a stable outlook by Moody‘s, B with a negative outlook by S&P, and B- with a negative outlook by Fitch.

GVO has appointed Moelis & Co as financial advisor and Santos Neto Advogados and Kirkland & Ellis LLP as legal advisors.

A spokesperson for GVO did not immediately answer requests for comment. (Reporting by Davide Scigliuzzo; Editing by Natalie Harrison)

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