Samarco’s financial creditors plan to take over the company

Rupture of Samarco’s Fundao dam – Image courtesy of Wikimedia Commons

An alternate restructuring plan for Samarco Mineracao SA, a joint venture between Vale SA and BHP Group, proposes that financial creditors take control of the company.

The plan filed by a group of bondholders is expected to replace Samarco’s debt restructuring proposal, which was rejected last month.

The bondholders group, which includes asset managers such as Oaktree Capital, Silver Point Capital, GoldenTree Asset Management LP and Solus Alternative Asset Management, expects most of the $4 billion debt to be converted into equity.

Renato Franco, founder of restructuring firm Integra Associados, which is advising creditors, estimates creditors will hold around 90% of the company after the restructuring.

Shareholders Vale and BHP are expected to ask the bankruptcy court for the right to vote on the plan. If their vote is not allowed, the creditors’ plan could be easily approved.

Creditors are proposing to bring forward deadlines to ramp up production and accelerate cash flow generation. The plan has a target of doubling iron ore production by 2024, to 14 million tonnes annually, and reach full capacity at 28 million tonnes annually by 2026. The shareholders plan expected this volume to be reached by 2029.

Tito Martins, a former Vale executive who advises Samarco creditors and may become the company’s chairman, said investments in safer mining technology would allow a faster production ramp-up.

Samarco went bankrupt as it dealt with the fallout of its 2015 dam burst in the city of Mariana, in Minas Gerais state, which killed 19 people and caused extensive environmental damage. The company resumed production last year.

In a statement on Wednesday, Samarco said it had seen the creditors’ proposal in the bankruptcy process, and said it would take appropriate legal measures to prevent conduct and proposals that threaten “its perpetuity or do not consider the importance of its social function and remedial actions.”

After improving cash flow, advisers to creditors, Integra Associados and investment bank Houlihan Lokey may look to sell the company to a strategic investor, Martins added.

(By Tatiana Bautzer; Editing by Chizu Nomiyama)

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