By Brazil Stock Guide – A Brazilian court rejected Braskem SA’s (B3: BRKM5; NYSE: BAK) request to release approximately $70 million to its Mexican subsidiary, Braskem Idesa, leaving the petrochemical producer unable to complete funding commitments under the unit’s Chapter 11 restructuring in the US.
The provisional ruling maintains restrictions on additional transfers from the Brazilian parent to its Mexican operation, delaying steps in a court-supervised restructuring plan, according to a report published Tuesday by Broadcast, the financial news service of Agência Estado.
The decision adds to Braskem’s financial challenges as the company separately negotiates an out-of-court debt restructuring with its own creditors in Brazil.
$476 Million Funding Commitment
Braskem agreed to inject $476 million into Braskem Idesa under the subsidiary’s US bankruptcy restructuring plan. Approximately $405 million has already been transferred, leaving about $70 million subject to the Brazilian court restrictions.
The parent company initially provided $126 million before Braskem Idesa filed for Chapter 11 protection. It subsequently transferred $230 million after the US court accepted the proceedings, followed by another $49 million before the Brazilian judicial restrictions took effect.
The remaining funds are part of Braskem’s financial commitments to support its subsidiary’s reorganization and satisfy obligations established under the restructuring agreement.
Creditors of the Brazilian parent have raised concerns about the broader financial exposure associated with those commitments.
In submissions to the Brazilian court, they estimated that Braskem’s potential obligations related to the Mexican subsidiary could reach as much as $800 million.
That calculation includes an option allowing Braskem to acquire equity in Braskem Idesa within five years under a debt-for-equity conversion mechanism contemplated by the restructuring plan.
Court Ruling Leaves Transfers on Hold
The decision was issued by Justice Romolo Russo Junior of the São Paulo State Court of Justice’s Second Business Law Chamber.
The judge declined to suspend the restrictions preventing Braskem from transferring additional funds to its Mexican subsidiary, while indicating that the provisional decision could be reversed.
Braskem Idesa disclosed the development to creditors involved in its US Chapter 11 proceedings and attached the Brazilian court’s ruling to a filing submitted to the American bankruptcy court.
The Mexican company said it intends to provide additional information to the Brazilian judiciary concerning the transactions included in its restructuring plan.
The objective is to secure authorization for Braskem to complete the remaining financial commitments.
“The debtors will continue working to complete (close) the transactions contemplated by the Plan in order to comply with the legal obligations applicable to all parties. The Debtors and their counsel remain available to answer any questions the Court may have,” Braskem Idesa said in the filing, according to Broadcast.
The statement indicates that the subsidiary intends to continue implementing its restructuring agreement despite the restrictions imposed in Brazil.
Braskem Faces November Debt Restructuring Deadline
The court dispute comes as Braskem advances a separate out-of-court restructuring process in Brazil.
The company has until November 22 to obtain the required creditor support for judicial approval of its restructuring plan. The process requires agreement from creditors representing more than half of the relevant claims.
Braskem secured additional time last week to continue negotiations with holders of debt securities issued internationally.
Those creditors had previously established October 9 as a deadline for reaching an agreement, but discussions were extended beyond that date.
The Brazilian restructuring involves approximately $10.9 billion in unsecured financial obligations, according to a company filing with the US Securities and Exchange Commission in August. <Cite ref=”turn474486search2″/>
The parallel proceedings create an additional complication for Braskem’s financial reorganization, linking its ability to meet obligations to the Mexican subsidiary with negotiations involving creditors of the Brazilian parent.
Braskem Idesa’s Chapter 11 process is designed to reorganize its liabilities under US bankruptcy protection, while the Brazilian parent is pursuing a separate restructuring under domestic law.
The remaining $70 million transfer remains subject to the Brazilian court restrictions, and the company has not secured authorization to complete the payment.
Braskem’s ability to fulfill the outstanding funding commitment will depend on further judicial developments in Brazil, while negotiations over its own debt restructuring continue ahead of the November deadline.
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