NEW YORK, Jan 14 (IFR) - Brazil’s Grupo Virgolino de Oliveira (GVO) might have only a few weeks left to raise new cash and finalize an agreement with creditors that could stave off bankruptcy, after it missed a coupon payment on Tuesday.
Hit by a slide in sugar prices, the cash-strapped sugar and ethanol producer has been in discussions with creditors and potential new investors for months, as it seeks to strengthen its capital structure and reduce its debt burden.
On Tuesday, GVO missed a USD7m coupon payment on its 10.875% USD135m senior secured notes due 2020, which along with the company’s unsecured debt, have been trading in distressed territory since October.
With two more interest payments looming over the next few weeks - USD16m due January 28 on USD300m of 10.5% 2018s and USD18m due February 9 on USD300m of 11.75% 2022s - pressure is building for GVO to strike a deal with investors.
The unsecured 2018s were spotted trading on Tuesday at around 6 cents on the dollar, while the secured 2020 were being quoted at wide bid-offer spread of 20 to 40 cents on the dollar.
The company has been discussing with bondholders a debt-for-equity restructuring plan that would see the family owners end up with just a 15% stake in the business, according to a person with knowledge of the situation.
However, among the unresolved issues is sourcing between USD100m to USD200m in additional cash the company needs to keep operations running, the same person said.
The remaining 85% stake would be split between holders of GVO’s unsecured debt and the investors providing the additional cash.
While delaying interest payments could buy GVO some time, many believe cash levels are now running so low that the company will struggle to keep the lights on much longer.
“If something doesn’t happen within the next two weeks they will have to file for bankruptcy,” said the source familiar with the talks.
Rating agencies have also been voicing their concerns and have warned of steep haircuts ahead for bondholders.
“From a liquidity perspective the situation is very critical,” said Erick Rodrigues, an analyst at Moody’s in Sao Paulo.
“It would be very hard to put a percentage on the potential recovery value, but we do think there is going to be a considerable haircut.”
Standard & Poor’s on Wednesday downgraded GVO’s secured debt to D from CC and said it expects the firm to also miss coupon payments on its 2018 and 2022 notes.
GVO has appointed Moelis & Co as financial advisor, and Santos Neto Advogados and Kirkland & Ellis LLP as legal advisors.
Blackstone is representing bondholders in negotiations with the company.
Reporting by Davide Scigliuzzo; Editing by Paul Kilby