Brazil Stock Guide – A group of Braskem creditors has taken a new step in its effort to challenge the inclusion of Braskem America Finance Company in the Brazilian petrochemical producer’s out-of-court restructuring, according to documents filed with the U.S. Bankruptcy Court for the Southern District of New York.
FFI Fund, FYI Ltd. and Olifant Fund filed a notice on September 11 under Rule 44.1, a procedural mechanism used in U.S. federal courts when a party intends to raise issues involving foreign law. The filing comes ahead of a December 8 hearing on recognition of Braskem’s Brazilian restructuring under Chapter 15.
The funds had previously signaled that they could challenge recognition of the Brazilian proceeding as it applies to Braskem America Finance, the issuer of 7.125% bonds due in 2041. Among the issues raised by the creditors is whether the finance company’s center of main interests, or COMI, is in Brazil.
Braskem America Finance is incorporated in the United States and has debt governed by New York law. The creditors have also argued that the company should be assessed separately from other Braskem entities included in the Brazilian restructuring and have previously pointed to a potential Chapter 11 proceeding as an alternative.
The latest filing does not change the economic terms of Braskem’s restructuring and does not represent a court ruling against the company. It does, however, show that the bondholders’ challenge is moving into a more formal legal phase ahead of the court’s decision on whether to recognize the Brazilian proceeding in the United States.
Braskem, one of Latin America’s largest petrochemical producers, sought court approval in Brazil for an out-of-court restructuring, known locally as recuperação extrajudicial, as it attempts to reorganize a heavily leveraged balance sheet. The process allows a company to negotiate a restructuring with creditors outside a full judicial reorganization and then seek court approval to make the agreement binding on affected creditor classes if the required legal thresholds are met.
The restructuring follows years of mounting financial pressure on the company. Braskem has faced a combination of high leverage, weak conditions in the global petrochemical industry and the financial consequences of the geological disaster linked to its former salt-mining operations in Maceió, in northeastern Brazil. The company has spent billions of reais on compensation, relocation and remediation programs related to the disaster, adding pressure to its cash position.
At the same time, the petrochemical cycle has remained challenging. Global excess capacity, particularly from new Asian production, has weighed on spreads and margins across the industry, while Braskem has had to manage a large debt burden and significant refinancing requirements. Those pressures have progressively reduced the company’s financial flexibility and ultimately pushed it toward a broader restructuring of its obligations.
Braskem’s ownership structure has also changed materially during the restructuring process. Novonor, formerly Odebrecht, agreed to transfer its controlling stake in Braskem to Shine I, an investment fund advised by IG4 Capital.
The change in control adds another layer to the restructuring, as the company simultaneously works to stabilize its balance sheet, secure liquidity and navigate the interests of banks, bondholders, shareholders and strategic counterparties. The role of the new controlling shareholder and Petrobras is therefore likely to remain central as Braskem seeks to implement a coordinated solution across its capital structure.
If the creditors challenging the U.S. proceedings ultimately prevail, the court could still recognize the Brazilian restructuring for other Braskem entities while denying Chapter 15 recognition to Braskem America Finance, potentially leaving the finance company and its debt to be dealt with separately in the United States.
Such an outcome would not necessarily derail Braskem’s Brazilian restructuring, but it could complicate the company’s effort to implement a coordinated solution across its international debt structure and potentially give holders of the 2041 bonds a separate legal avenue to press their claims in the United States.
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