By Brazil Stock Guide — Creditors of Braskem (BRKM5), Brazil’s largest petrochemical producer, are demanding broader collateral over the company’s assets in Brazil, the United States and Europe, higher interest rates on restructured debt, and a larger upfront equity commitment from shareholders as conditions for supporting its out-of-court debt restructuring. The demands are outlined in a counterproposal submitted on October 24, one day after the company presented its own revised restructuring terms.
Braskem disclosed the competing proposals in a material announcement accompanied by 25 pages of financial projections and proposed commercial terms. Despite negotiations involving the company, its controlling shareholders and creditor representatives, neither proposal has been accepted. The parties face an October 30 deadline to meet a milestone under their negotiation framework, following an extension of the original timetable.
One of the main disagreements concerns borrowing costs. Creditors are proposing to increase the weighted-average interest rate on the relevant debt instruments from approximately 6.8% to 8.5% annually. They also want to restrict the company’s ability to defer cash interest payments. While Braskem proposes allowing 100% of interest to be capitalized through June 2029, subject to an additional premium, creditors want to limit that option to 50% of interest through December 2027, with a 1.75-percentage-point premium.
The dispute also extends to collateral. Braskem proposes pledging assets and equity interests in its U.S. operations to secure the restructured debt, with additional collateral subject to negotiation. Creditors are seeking a much broader security package, including first-priority liens over assets and equity interests in the Brazilian, U.S. and European operations, as well as the company’s stake in Braskem Idesa, its Mexican petrochemical joint venture. Such arrangements would substantially strengthen creditors’ protection while limiting Braskem’s ability to use those assets in future financing transactions.
Another significant disagreement concerns cash management. Under Braskem’s proposal, cash above a US$2 billion threshold would be subject to an annual mandatory debt repayment mechanism, commonly known as a cash sweep. Creditors want to lower that threshold to US$1 billion, subject to certain exclusions for proceeds from the proposed equity offering. They also want all proceeds from asset sales to be used to repay secured debt.
US$2.25 Billion Equity Raise
Both sides agree in principle on a US$2.25 billion equity offering, but differ over how much of the transaction should be guaranteed by shareholders or third parties and when the proceeds must be funded.
Braskem proposes a US$1.2 billion backstop commitment from its main shareholders or third parties, with half the amount funded at closing and the remaining 50% paid 12 months later. The company’s proposal also includes an additional contingent equity commitment of up to US$500 million, which could be called upon in June 2029 if needed to meet agreed financial targets.
Creditors, however, want to increase the guaranteed portion to US$1.85 billion, with the full amount funded at closing. They also reject the contingent equity contribution structure and want approval rights over third parties providing backstop commitments in place of the principal shareholders.
The conversion of debt into equity is another contentious issue. Braskem proposes converting up to US$2.8 billion of creditor claims into shares at closing, using a conversion price linked to the prevailing market price. Creditors instead propose an initial US$1.85 billion debt-for-equity swap at a fixed price of R$2 per share, with the possibility of converting an additional US$450 million in June 2029, subject to agreed financial conditions.
Under the creditor counterproposal, new shares issued to raise fresh capital would be priced at R$1.60 each, representing a 20% discount to the proposed debt conversion price. The combination of debt-for-equity swaps and new share issuance could significantly dilute existing shareholders, depending on the final transaction terms, implementation structure and investor participation.
Cash Flow Projections Highlight Financial Strain
The documents also provide a financial outlook that helps explain the urgency of the restructuring. Under management’s projections, Braskem expects EBITDA of US$1.46 billion in 2026, followed by a decline to US$1.10 billion in 2027. Operating performance is expected to recover gradually, with EBITDA reaching US$2.05 billion only in 2030.
The more immediate concern, however, is cash flow. Under a status quo scenario that assumes debt payments continue according to their existing contractual terms, Braskem projects a US$1.89 billion cash outflow in 2027 and a negative unrestricted cash balance of US$3.17 billion by year-end.
This is a financial modeling exercise illustrating the mismatch between scheduled debt payments and projected cash generation, rather than a forecast that the company will actually operate with a negative bank balance.
A separate scenario assuming a suspension of financial interest and principal payments during the modeled period shows unrestricted cash of US$981 million by the end of November 2026. Even under that scenario, Braskem forecasts negative monthly EBITDA of US$6 million in November, highlighting continued operational weakness amid an unfavorable global petrochemical cycle.
Creditors are also seeking greater influence over strategic decisions. Their counterproposal would make the implementation of the Braskem Idesa transaction conditional on the closing of the restructuring and require approval from at least 50% of signatory creditors for strategic capital expenditures, including the Transforma Rio project.
The documents suggest that negotiations have progressed toward defining the financial structure of a potential restructuring, but significant differences remain over how the burden should be shared between creditors and shareholders. While both sides broadly agree on the need for fresh equity and the conversion of some debt into shares, they remain divided over interest rates, collateral, shareholder dilution and control over cash.
Braskem emphasized that the financial projections were prepared exclusively for discussions surrounding its out-of-court restructuring and should not be treated as formal earnings guidance. The commercial terms submitted by both sides remain proposals rather than an agreed transaction and are subject to further negotiations, corporate approvals and applicable legal requirements.
The next negotiation milestone falls on Friday, October 30. Until then, the central challenge will be reconciling Braskem’s need to preserve liquidity with creditors’ demands for stronger financial protection and a greater share of the potential upside from the company’s eventual recovery.
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