Samarco creditors reject debt restructuring proposal

Creditors of mining company Samarco, a joint venture between Vale and BHP, rejected this Monday (18) the debt restructuring plan presented by the company in an online meeting. Creditors can now come up with an alternative plan for debt restructuring.

The group, which has a debt of R$ 26 billion from the company, will have a period of 30 days to present its alternative plan, as provided for in the new judicial reorganization law.

The plan’s disapproval occurred after the meeting was postponed on two occasions, with Samarco amending the plan in an attempt to seek a consensus. Behind the creditors’ denial is the notion that Vale and BHP Billiton, the business partners, would have to assume more responsibilities in relation to the company.

Samarco will be the first company undergoing judicial reorganization to “test” this new law, since before there was no opening for creditors to present an alternative plan. Given the novelty of the law, there is a concern, behind the scenes, that the process becomes litigious, that is, of more disputes in the courts.

Lenders already have a plan ready to roll out, sources say. In this document, the former executive of Vale, Tito Martins, who at the end of last year left the command of Nexa, ex-Votorantim Metais, will be the one indicated to take over Samarco, under the mission of bringing an independent management to the company.

Martins is also the name behind the plan to be presented by creditors. The executive, a well-known name in the mining sector in Brazil, has been on the board of Samarco for three years in the past, and has been working on the case for about two months. Íntegra Associados and the investment bank Houlihan Lokey are also responsible for structuring the new plan.

Conservative projections

The new plan, according to sources, will also bring a faster resumption schedule for the mining company’s production resumption, since the reading is that the company currently works with very conservative forecasts. In practice, there may even be more than one alternative plan, if it is in the interest of another creditor group to present another document.

Samarco estimates that its production, which reached around 7 million tons of iron ore in 2021, will reach the pre-tragedy volume only in 2030, when it would reach 28 million tons. The company had its activity suspended as a result of the tragedy in Mariana (MG) in 2015, after the collapse of one of its dams.

Internally at Samarco, the question is whether creditors will, from now on, have a more flexible posture in order to seek a consensus. “They will have to come up with a plan with credible assumptions,” said one source, on condition of anonymity.

The source stresses that, so far, what has been presented by the group does not hold up and that the premises of a new plan cannot be based on the fact that the price of iron ore remains at current levels, which are very high, or that it is possible to bring forward production at the company’s full capacity. Thus, if the company’s understanding is that the plan “does not stand still”, the path will be to fight in court.

Also due to the unprecedented nature of the case, it is not known whether the two shareholders of Samarco, Vale and BHP, will be able to vote at the meeting that will deliberate on the plan to be presented by the creditors. Owners of about half of the mining company’s debt, the two giants did not vote at the assembly that disapproved of the plan. The matter has already been addressed in court, but there is still no outcome.

The plan’s disapproval came unsurprisingly. Last week, the group of creditors had already signaled that it would vote against the presented plan. In a lawsuit, the group says that the “fourth plan by Samarco repeats the same abuses and illegalities (of the previous ones)” and that it was “conceived from premises detached from reality.