Unigel Buys Time to Avoid Default With Brazil Creditor Deal

Troubled Brazilian fertilizer maker Unigel Participacoes won additional time from local creditors to avoid breaching a covenant which would trigger a cross-default clause on its dollar debt.

(Bloomberg) — Troubled Brazilian fertilizer maker Unigel Participacoes won additional time from local creditors to avoid breaching a covenant which would trigger a cross-default clause on its dollar debt.

A group of local creditors agreed not to take any action that could prompt the early maturity of bonds for a period of 90 days, or until the company concludes the restructuring of its local notes, according to people familiar with the matter, asking not to be named because the information isn’t public yet.

The standstill gives the company breathing room as it negotiates new terms with local creditors. Holders are asking for substantial changes to the existing notes, including more collateral and equal treatment with other creditors such as global bondholders, in exchange for a delay on debt payments, the people said.

Unigel declined to comment.

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Unigel is set to breach a covenant on its local bonds after lower fertilizer prices globally eroded earnings and sent its leverage ratio skyrocketing. Lending agreements — known as indentures — for the company’s local notes require it to keep the ratio of net debt to adjusted Ebitda below or at 3.5 times. S&P Global Ratings says it could peak at near 10 times by year-end.

The company will likely breach the covenant with second-quarter results, whose release has been postponed amid talks with local bondholders. If holders declare the early maturity of the local debt, it would trigger cross-default clauses on its 2026 dollar notes. The bonds, which traded near par until May, have sunk to around 37 cents on the dollar since.

Unigel was founded by Henri Slezynger, whose family fortune is valued at over $2 billion, according to calculations by the Bloomberg Billionaires Index. The company, which is being advised by Moelis & Co. on debt talks, is one of the main fertilizer producers in an economy that is 25% agribusiness. It also sells chemicals to industrial customers.

Local holders are being advised by boutique advisory firm Valuation Consultoria Empresarial Ltda.

(Updates to say Unigel declined to comment in fourth paragraph.)

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