Brazil’s Americanas files for bankruptcy protection

A judge at a Rio de Janeiro business court accepted a reorganization petition from Americanas, one of Brazil’s biggest retailers, after the company informed investors of its request on Thursday. The approval caps an extraordinary week of corporate drama that has sent shockwaves through financial markets.

Eight days ago, Americanas admitted to having spotted “accounting inconsistencies” in its financial reports. The revelation also came with the news that its chief executive and chief financial officers, who had taken office just days prior, were stepping down. 

Former CEO Sergio Rial, who took on a role as an advisor after resigning from his position, said the next day that the error stems from the fact that “many payments to suppliers that were funded by banks were not considered as debt [as they should be].” The hole is estimated at BRL 20 billion (USD 3.87 billion).

Mr. Rial then downplayed the problem when talking to investors, creditors, and analysts, saying that no debts were coming due so soon and adding that the company had a cash position of almost BRL 8 billion.

But last Friday, Americanas filed an injunction request saying the accounting error could lead to “the early and immediate maturity of debts” that could reach BRL 40 billion (nearly USD 7.8 billion). Granted by the Rio de Janeiro business court, the injunction was an attempt to prevent the freezing of Americanas’s assets and to postpone debt obligations until the company had a clearer idea of whether it needed to file for bankruptcy protection or not.

The day has come much sooner than the market initially expected, and after some of the creditors were able to partially reverse the injunction and freeze resources they are entitled to as payment for financing and investments.

The BRL 8 billion current cash position turned out to be only BRL 800 million. The company’s debts amount to BRL 43 billion and involve financial, labor, and supplier creditors. A complete list will be released soon.

This will be the fourth-largest bankruptcy case registered in the country, after construction conglomerate Odebrecht, telecommunications operator Oi, and miner Samarco.

In the bankruptcy protection request, the company states that “all of the company’s cash position has been drained by financial institutions holding claims against Grupo Americanas.” 

It adds that “if the immediate processing of this judicial reorganization is not granted,” there is a risk of “an absolute annihilation of Grupo Americanas’s cash flow, which will prevent the fulfillment of daily obligations essential to the exercise of business activity, such as paying suppliers and employees.”

Without being able to rely on banks to purchase goods and pay suppliers, the company is renegotiating deadlines with its stakeholders. At the same time, it is attempting a capital increase operation capable of covering the accounting gap and keeping the company running.

Prior to the beginning of the scandal, Americanas’s shares were trading at BRL 12 — at 2 pm this Thursday, prices had taken a nosedive to BRL 1.31.

With much to be clarified, market reactions have not yet bottomed out.

Upon having the request for bankruptcy protection accepted, labor debts take priority in the company’s set of liabilities — which does not make the other creditors happy. Nor does it mean immediate relief for the company’s nearly 45,000 employees since it takes capital to pay off obligations to all these people.

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