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Court approves Samarco recovery plan but rejects transfers related to dam failure

Aerial view of Bento Rodrigues, the town destroyed by the Samarco dam collapse in Mariana. Photo: Gustavo Basso / Shutterstock

Last Friday, a Minas Gerais business court approved the recovery plan of mining firm Samarco, a joint venture between Brazil’s Vale and Anglo-Australian BHP. In June, Samarco reached a binding agreement with its major creditors to restructure its BRL 50.5 billion debt (USD 9.7 billion) but has since been waiting for the green light from the courts.

Samarco’s bankruptcy protection proceedings have been ongoing since April 2021. Its 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 region, destroying several towns and killing 19 people.

Of the total amount owed by Samarco, about half (BRL 26 billion) comes from securities issued abroad and pre-export financing lines, and the other half from debts owed to Vale and BHP, referring to the funds subsidiaries had to transfer to Samarco to cover costs related to the dam collapse.

The plan consists of a 25 percent discount on the debt to financial creditors, providing 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.

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.

Employees, strategic suppliers, and small and medium-sized companies to which Samarco owes up to BRL 1.5 million will be paid in full.

In the plan, Samarco suggested that its contribution to financing its debt repayment “would be capped from 2024 to 2030 at USD 1 billion,” with additional contributions depending on excess cash flow generated by the company. However, the Minas Gerais court rejected this part, which was central to Samarco’s recovery plan as it established a limit on the responsibilities related to the dam failure.

Analysts say the rejected part may hinder the whole restructuring process, but neither Vale nor BHP have publicly commented on the matter.

As we reported in August, around 720,000 Brazilians are suing BHP, the world’s biggest miner by market value, over the 2015 dam collapse in lawsuits processing in the courts of England and Wales. Vale was made a co-defendant in the gigantic class-action suit. The amount of compensation sought has also risen from GBP 5 billion to GBP 36 billion (USD 45.5 billion).

Learn more on our podcast: Explaining Brazil #255: Will justice be served for Mariana?

Fabiane Ziolla Menezes

Former editor-in-chief of LABS (Latin America Business Stories), Fabiane has more than 15 years of experience reporting on business, finance, innovation, and cities in Brazil. The latter recently took her back to the classroom and made her a Master in Urban Management from PUCPR. At TBR, she keeps an eye on economic policy, game-changing businesses, and people driving innovation in Latin America.