Troubled Brazilian fertilizer and chemical producer Unigel Participacoes won additional time from a meeting with local creditors (GM Aug. 18, p. 28) to avoid breaching a covenant that would trigger a cross-default clause on its dollar debt, according to a Sept. 5 Bloomberg report.
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.
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.
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 or 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, the release of which have 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 since sunk to around 37 cents on the dollar.
Unigel was founded by Henri Slezynger, whose family fortune is valued at more than $2 billion, according to calculations by the Bloomberg Billionaires Index.