Communication

Court-Supervised Reorganization of Odebrecht S.A

External communication

Filing for Court-Supervised Reorganization

Odebrecht S.A. (“ODB”) informs that, today, jointly with its parent companies and certain subsidiaries (together, the “Companies”), it filed for the court-supervised reorganization of the Companies with the Judicial District of the Capital of São Paulo State, pursuant to Federal Law 11,101/05, as duly approved by the competent corporate bodies of the Companies. The following companies are not included in the scope of the court-supervised reorganization: Braskem S.A., Odebrecht Engenharia e Construção S.A., Ocyan S.A., OR S.A., Odebrecht Transport S.A., Odebrecht Defesa e Tecnologia S.A. and Enseada Industria Naval S.A. (jointly referred to as the “Businesses”), as well as some operational assets in Latin America and their respective subsidiaries. Also not included in the court-supervised reorganization of ODB are Atvos Agroindustrial S.A. (which already is under court-supervised reorganization), Odebrecht Insurance Brokerage, Odebrecht Retirement Fund and the Odebrecht Foundation. The reorganization filing involves R$51 billion in claims, excluding loans between the Group’s companies and first priority claims.

Both the operational and auxiliary companies and ODB itself will continue to operate normally, focusing on the common goal of ensuring their financial stability and sustainable growth to preserve their social purpose of maintaining and creating jobs. 

Five years ago, the Odebrecht Group had over 180,000 employees. Today, it has 48,000 employees as a result of the economic crisis that adversely affected many of ODB’s investment plans, the impact on its reputation associated with its wrongdoings and the challenges faced by the companies that cooperated with the authorities to once again be able to take out loans and compete for service contracts.

Since 2016, ODB has been devoting all its efforts to overcoming its corporate challenges and to honoring its commitments by adopting a series of initiatives aimed at (i) preserving its national legacy of technological expertise and excellence in engineering, which is recognized internationally and was acquired over decades; (ii) strengthening the Group’s governance; (iii) implementing and continually improving its compliance system, which includes the tools required to uphold its commitment to acting ethically, with integrity and transparency, in its operations; (iv) reinforcing its liquidity and deleveraging, mainly by divesting assets, bilateral negotiations and out-of-court reorganizations implemented at certain of its Businesses; (v) reducing its administrative expenses; and (vi) fulfilling all of its obligations established in the leniency agreements entered into with the various authorities in Brazil and abroad.

In this sense, despite the economic crises faced in Brazil and in the countries and industries where it operates, ODB has made significant financial investments in its Businesses and implemented a divestment program to honor commitments and ensure the Group’s financial stability. The measures adopted by ODB include:

At OEC, which operates in the engineering and construction sector, it invested nearly R$1.0 billion in 2018, which enabled the stabilization of its operations in the period;

At Atvos, which operates in the agricultural industry, in 2016, it made, which was not accompanied by Atvos’ non-controlling shareholders, a capital contribution of R$6.0 billion, which enabled the stabilization of the Business at that time, which subsequently was severely affected by industry and weather factors; 

At Ocyan, which operates in the oil and gas industry, it has made a capital contribution of approximately US$530 million to support its out-of-court reorganization plan;

At OR, which operates in real estate development, it made capital contributions of nearly R$500 million over the past few years, which has sustained the Business to date;

At Enseada, which operates in the shipbuilding industry, it has made in recent years capital contributions, without the support of the other partners, of approximately R$900 million to preserve the asset and support the performance of its core obligations, which enabled the negotiations that led to the approval of Enseada’s out-of-court reorganization plan;

Conclusion of the sale of Odebrecht Ambiental, which operated in the sanitation industry, giving ODB the liquidity needed to continue supporting its Businesses at that time and to fulfill its civil redress obligations to the Brazilian Federal Prosecution Office and to the U.S. Department of Justice; 

At OTP, which operates in Brazil’s infrastructure investment sector, it concluded the divestment of EMBRAPORT, Via Rio, Via 4, Ótima, Galeão, LOGUM, CRB and Supervia, and is conducting negotiations, which are currently in the advanced stages, for the sale of certain other assets  that combined will significantly reduce OTP's debt; 

In the energy sector, it concluded the sale of the Corredor do Senandes Wind Power Complex;

In Peru, it concluded the sale of Chaglla and of the controlling interest in Rutas de Lima, and is in ongoing negotiations for the sale of its other infrastructure assets in Latin America; and

It continued to invest in the Odebrecht Foundation and in its commitment to benefit, through its social and environmental projects, the lives of thousands of people in 19 municipalities in the Lowlands of Southern Bahia, which is home to 300,000 people and has one of Brazil's regions with the lowest Human Development Indexes (HDI).

In view of the aforementioned, with additional support from its financial and legal advisors, ODB continues to dedicate all efforts to optimizing its liquidity and to streamlining its capital structure, with the goal of reorganizing its businesses definitively to enable the maintenance of jobs and of local technological expertise, while also creating sustainable value in the best interest of society and of other stakeholders. 

In view of the coming due of certain liabilities, unpredictable events and recent attacks on the assets of the Companies, the management of ODB, duly authorized by its controlling shareholder, has concluded that filing for court-supervised reorganization is the most appropriate course of action for enabling the successful conclusion of its financial reorganization process in a coordinated, secure, transparent and organized manner, thereby ensuring the continuity of the Companies and of their social function. 

ODB will keep its shareholders, team members and other stakeholders informed of any developments in the matters addressed in this Notice and will publish in a timely manner on its website (www.odebrecht.com/pt-br/comunicacao/recuperacao-judicial) any material information on the processing of the court-supervised reorganization. 

São Paulo, June 17, 2019
Luciano Guidolin
Chief Executive Officer

*Updated 6/18 at 10:30 p.m.

Internal communication

Dear Team Members,

Upholding the commitment that I undertook to keep you updated and to always act transparently, I announce that Odebrecht S.A., jointly with its parent companies and certain subsidiaries, was obligated today, June 17, to file for court-supervised reorganization in view of the coming due of certain liabilities and of legal claims that could generate significant losses for our companies. 

The filing for court-supervised reorganization, whose purpose is to protect the Group and its team members, jobs, tangible and intangible assets, including technological, does not affect our Group’s operational companies, such as Braskem, OEC, Ocyan, OR, OTP, Enseada, OLI, ODT and Atvos, the latter of which already has filed for court-supervised reorganization. The reorganization filing involves R$51 billion in claims, excluding loans between the Group’s companies and first priority claims.

Both these companies and the holding company Odebrecht S.A. will continue to conduct their business activities normally. Therefore, it is important that you maintain the same level of dedication and concentration that you always have adopted in the execution and delivery of your action programs.

Please understand that, in our view, court-supervised reorganization is the most appropriate course of action at this time. It represents a change in environment to ensure our continued efforts in the group’s financial restructuring. As of today, the negotiations with creditors will be conducted collectively and will advance with protection from the courts for the company and its team members, along with greater coordination, security and transparency. Our goal remains the same: to reach a definitive and sustainable solution to our financial equilibrium, which is an indispensable step so that soon we can once again focus on our growth plans. 

For some time you have been accompanying these efforts that all of us have been making to overcome the business challenges that first emerged in 2016. We are doing our homework. We have strengthened our corporate governance, which included creating or reinvigorating the board of directors of our Businesses with the inclusion of more independent directors in the Group and the adoption of new policies and directives. We have implemented our compliance system based on international references in best practices and are continually enhancing it with improvements to our internal processes and the use of tools needed to uphold our commitment to acting ethically, with integrity and transparency and our commitment to meeting all the obligations undertaken in the leniency agreements signed in Brazil and other countries. 

You also have perceived in your day-to-day activities how we have constantly sought to reduce our administrative expenses. We also our focusing on shoring up our liquidity and on deleveraging by divesting assets. On this front, we have successfully concluded the sales of Odebrecht Ambiental, Embraport, Via Rio, Via 4, Ótima, Galeão, Rota das Bandeiras, Supervia, Logum, Complexo Eólico Corredor do Senandes, Rutas de Lima and Chaglla. 

Meanwhile, we also have made capital contributions to support the operations of several of our Businesses. Since 2016, we have injected R$6 billion into Atvos, R$1 billion into OEC, US$530 million into Ocyan, R$900 million into Enseada and R$500 million into OR. 

Of course, during this period, Brazil’s most serious economic crisis of decades has significantly weighed on the recovery of our Businesses. Furthermore, we have not yet received full recognition for having completely transformed our organization and for transcending the wrongdoings that we committed in the past, which makes it more challenging to tap new sources of credit and liquidity.  

In this scenario, the court-supervised reorganization will give Odebrecht S.A., which has guaranteed a large portion of the loans taken out by the operating companies, the tranquility, transparency and resilience to reorganize its strategy in coordination with its creditors. The rationale of the institution of court-supervised reorganization is to preserve the company so that, by maintaining its normal business activities, it can, through its own efforts, surmount its financial crisis. I am confident that we will successfully get through this phase.

And you team members are a critically important part of this process.

I am counting on you. 

Warm regards,
Luciano Guidolin
Chief Executive Officer
Odebrecht S.A.

*Updated 6/18 at 10:30 p.m.

 

Questions and Answers

Court-supervised reorganization

1. What is court-supervised reorganization?

Court-supervised reorganization is an instrument of legal protection for companies that are going through a financial crisis but which can recover from it and have economically viable operations. In this process, creditors whose debt is included in the plan are invited to participate, providing the company with the necessary conditions to renegotiate its debt collectively, uniformly and transparently. In the court-supervised reorganization, which seeks to preserve the company and overcome the financial crisis, the company’s operations continue normally.

2. Why did Odebrecht S.A. decide to seek court-supervised reorganization?

The current economic crisis, combined with the debt contracted for the heavy investments made by the Group in the last decade, significantly impacted the Businesses and their capital structure. Also, in recent years, the Businesses of the Group and ODB found it difficult to access new liquidity sources, which hindered their economic and financial capacity, despite the implementation of the asset divestment program. In light of this scenario, Odebrecht S.A., as the parent company and also the guarantor of a significant portion of the loans obtained by its Businesses, is seeking to adjust its debt profile to protect its companies and ensure that the jobs of its team members are preserved. Odebrecht S.A. decided on the need to seek court-supervised reorganization to obtain the greatest protection provided by this mechanism, which, by standardizing the dialog among all those involved, can enable a transparent, safe, coordinated and organized economic and financial restructuring of the company while protecting its assets and, consequently, ensuring its continuity.

3. How does court-supervised reorganization work?

The request for court-supervised reorganization is filed by the company itself by submitting a series of documents and meeting certain formal requirements established by law. Once the formal requirements have been met, the judge approves the court-supervised reorganization request, i.e. the judge allows the company’s case to be analyzed by the courts. This approval has some important effects, including:

a) suspension of all lawsuits and executions against the company for 180 days in order to provide the company with legal stability to negotiate with its creditors;
b) start of the 60-day period for the company to submit a proposal for the reorganization plan;
c) appointment of the bankruptcy trustee. 

4. What is a court-supervised reorganization plan?

The court-supervised reorganization plan is a document that details the measures to be adopted by the company to overcome its current crisis. The company presents, in its court-supervised reorganization plan, a proposal to creditors informing: 

• The methods to be used to overcome the crisis – which could include renegotiating obligations, divesting assets, changing business plans, etc.;
• The terms of payment of the debts included in the reorganization;
• Analysis of the economic feasibility of the company. 

The reorganization plan depends on approval of the creditors gathered at a general meeting of creditors and its approval binds all creditors affected by it, including those who vote against it, abstain from voting and/or fail to attend the general meeting.

5. How is the court-supervised reorganization plan voted?

At the general meeting of creditors, all creditors, categorized according to the characteristics of their debts, meet to vote on approving the plan. The creditors are divided into four classes: 

(i) labor dues;
(ii) loans with security interest;
(iii) loans without collateral (called unsecured loans);
(iv) loans classified as micro-businesses or small businesses.

The plan is approved by the majority of the creditors of each class, taking into consideration only those present at the meeting, in which case: 

(a) for classes (i) and (iv), the majority is considered only by the number of creditors (head count),
(b) for classes (ii) and (iii), the majority is considered both by the number of creditors and the amount owed to them.

6. What happens after the plan is approved? 

After the court-supervised reorganization plan is approved by creditors, the judge handling the reorganization must analyze the legality of the general meeting of creditors and ratify the resolution taken. From that moment, all the loans subject to the plan will be due according to the conditions stipulated in the court-supervised reorganization plan. The judge then grants the court-supervised reorganization. The court-supervised reorganization process will last two years from that decision, during which time compliance with the plan will be supervised by the courts. After the end of the court-supervised reorganization, the company must continue to comply with the reorganization plan as with any other agreement, if it envisages obligations that fall due after the conclusion.

7. Who is the bankruptcy trustee and what does he do?

The bankruptcy trustee is an individual or legal person appointed by the judge responsible for the court-supervised reorganization to help him in conducting the process. The main functions of the bankruptcy trustee are: 

• to inspect the operations of the companies under court-supervised reorganization;
• to verify the list of creditors;
• to preside over the General Meeting of Creditors;
• to oversee compliance with the reorganization plan. 

The bankruptcy trustee does not perform any function of managing the company’s operations. The bankruptcy trustee starts his activities immediately after the request for court-supervised reorganization is approved.

8. Is court-supervised reorganization a form of bankruptcy? 

No, quite the opposite. The court-supervised reorganization is based on the assumption that the crisis that the company is going through is temporary and that it has the conditions to overcome it if its debts are renegotiated. As such, its objective is to enable the company overcome the difficult moment and continue to operate. Bankruptcy, on the other hand, considers that the company is no longer economically viable and, therefore, adopts measures to liquidate all the goods, assets and production resources in an organized manner.

9. How are labor dues treated in a court-supervised reorganization?

Law establishes a period of up to one year from the ratification of the plan at the general meeting of creditors to settle labor dues.

10. What is the difference between an Out-of-Court Reorganization (RE) and a Court-Supervised Reorganization (RJ)?

In the case of Out-of-Court Reorganization, the plan is filed in court with the consent and signature of creditors representing more than 60% of the debts listed. After the request is filed, there is a period for other creditors to present their appeals. Once these appeals are resolved, the plan is ratified. Its effects cover all groups or classes of creditors, including those who initially failed to join the plan. 

In the case of court-supervised reorganization, the company presents a series of documents and meets certain formal requirements established by law. Once the formal requirements have been met, the judge approves the court-supervised reorganization request, i.e. the judge allows the company’s case to be analyzed by the courts. This approval has some important effects, including: (a) suspension of all lawsuits and executions against the company for 180 days in order to provide the company with legal stability to negotiate with its creditors; (b) start of the 60-day period for the company to submit a proposal for the reorganization plan; (c) appointment of the bankruptcy trustee.

While approving the request for court-supervised reorganization, the Judge appoints a bankruptcy trustee for the process. In out-of-court reorganizations, the appointment of a bankruptcy trustee is not envisaged.  

11. Who are the creditors of Odebrecht S.A.?

The majority of creditors of the companies included in the court-supervised reorganization are financial agents, but there are also suppliers of goods and services.

12. What is the updated amount of loans included in the court-supervised reorganization?

The request filed amounts to R$ 51 billion in bankruptcy loans, excluding loans between group companies.

13. What is the current cash position of Odebrecht S.A.?

The company has sufficient cash to maintain the operations and commitments undertaken towards team members, suppliers and current partners. 

14. How will the court-supervised reorganization affect the company’s operations?

In a court-supervised reorganization, which seeks to give continuity to the company by overcoming the financial crisis, the company’s operations continue normally.

15. Who are the company’s financial and legal advisors in this case? 

RK Partners – financial advisor
E.Munhoz – legal advisor

16. Will the reorganization of Odebrecht S.A. impact Group Businesses?

The request for court-supervised reorganization applies only to the holding company Odebrecht S.A., together with its parent companies and certain subsidiaries. It does not impact the Group’s operating companies, such as Braskem, OEC, Ocyan, OR, OTP, Enseada, OLI, ODT and Atvos (which is already under court-supervised reorganization), or OCS, Odebrecht Retirement Fund and the Odebrecht Foundation.

INFORMATION TO PARTNERS AND SUPPLIERS

17. What determines whether I should or should not appear in the list of creditors?

The elements that determine the inclusion or not of a claim in the list of creditors are: (i) the type of claim (labor claims, unsecured claims and claims secured by mortgage or pledge must be included in the list) and (ii) if the fact that gave rise to the claim is prior to the petition for court-supervised reorganization.

18. I am a creditor, but my name was not on the list of creditors. What should I do?

You have to submit a proof of your claim by July 10, 2019, directly to the bankruptcy trustee, via the e-mail aj_odb@alvarezandmarsal.com

19. I am a creditor, but the amount shown on the list of creditors is incorrect. What should I do?

You have to submit a statement of divergence of claim by July 10, 2019, directly to the bankruptcy trustee, via the e-mail aj_odb@alvarezandmarsal.com

20. After the petition for court-supervised reorganization, is the Company authorized to enter into new contracts?

Yes. The court-supervised reorganization does not prevent the Company from entering into new contracts, and any contractual amounts will not be affected by the court-supervised reorganization.

21. I am a creditor and my address has not been updated. What should I do?

You must submit a request for updating your information by July 10, 2019, directly to the bankruptcy trustee by, via the e-mail aj_odb@alvarezandmarsal.com

* Updated on June 28 at 11:00 a.m.