Brazilian mining giant Vale has announced that it has reached a binding agreement on the basic details of a plan to restructure the BRL 50.5 billion (USD 10 billion) debt of Samarco, a joint venture it controls with Australian mining company BHP’s subsidiary BHP Billiton Brasil.
According to Vale, major creditors holding more than 50 percent of Samarco’s notes and unsecured bank debt have agreed to the proposal, which still needs to be officially presented and approved by all of the company’s creditors. as well as by the courts where Samarco’s bankruptcy protection proceedings have been ongoing since April 2021.
Without providing further details, Vale said that Samarco will pay creditors “over time, in line with the company’s operational ramp-up and cash flow generation” and that the company should emerge from the plan “with a lean capital structure.” In addition, Vale said that Samarco’s contribution to financing its debt repayment “will be capped from 2024 to 2030 at USD 1 billion,” with additional contributions depending on excess cash flow generated by the company.
Samarco posted revenues of BRL 8.1 billion and net losses of BRL 12 billion last year, operating at 26 percent of capacity. The company would not return to full capacity until 2028.
Vale and BHP will pay the remaining reparation balance equally, that is, values beyond Samarco’s USD 1 billion cap.
Samarco’s debt problems stem from the 2015 collapse of an iron ore tailings dam in the southeastern Brazilian city of Mariana, which spilled the equivalent of 25,000 Olympic swimming pools of toxic sludge into the surrounding area, destroying several towns and killing 19 people.
A source close to the negotiations told the business news portal Pipeline that the plan consists of a 25 percent discount on the debt.
Of the total amount owed by Samarco, about half (BRL 27.4 billion) comes from securities issued abroad and pre-export financing lines, and the other half from debts owed to shareholders, Vale and BHP, referring to the funds the subsidiaries had to transfer to Samarco to cover costs related to the dam collapse.
According to Pipeline, the new agreement provides for the issuance of USD 3.5 billion in new bonds maturing in 2031 with a yield of 9 to 9.5 percent, which Samarco will exchange for the old bonds at a ratio of 1: 0.75. Creditors not eligible for this option would be paid through another instrument maturing in 2035 and yielding 5 to 5.75 percent.
Also according to Pipeline, in the case of the debt with Vale and BHP, up to USD 2.2 billion, in addition to the new liabilities generated by the disaster remediation obligations, would be converted into equity, and the remainder would be subordinated to the debt of the financial creditors and would not be paid until 2036.
The company will pay other debts with workers and smaller suppliers in full.
A meeting with all of Samarco’s creditors should be scheduled within the next 30 days.
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