The operational dilemmas of debt restructuring
Opinion 3 minute read

The operational dilemmas of debt restructuring

30 August 2017

Since 2005, when the Bankruptcy Act was approved, the Brazilian market has been experiencing a continuous evolution of the operational aspects resulting from the debt restructuring or recovery processes.

The crisis that has affected the Brazilian economy in recent years has considerably increased the number of companies which have been forced to restructure their debts, whether by extending terms, assigning new collateral and sharing them, or through a recovery plan.

It is misleading to assume that having a recovery plan approved by creditors, judges and judicial administrators (in the case of court judicial reorganization) is sufficient. Many documents require the hiring of an “agent” to act as collateral agent, administrative agent or paying agent. In practical terms however, the activities to be performed by the agent are seldom formalized as they should  be. We have noted that this matter is addressed quite differently by debtors and creditors.

The view of debtors– and their legal advisors - is usually that providing less room for discussion puts them in a more advantageous position, since the more detailed is the plan, the more obligations there are for the company. At the same time, creditors incorrectly believe the lack of details on the operating activities may, over time, give them the opportunity to increase their requirements toward debtors. Both sides are wrong.

The best option

We believe it is recommendable to develop language in the plan that contains all the operational details, necessary to support all parties and ensure the obligations are effectively under control. Often times, we come across agreements containing certain covenants which are impossible to be followed by the borrower and controlled by the agent.

Virtually, in all types of secured transactions, whether  debt restructuring or brand new debt, the agent’s involvement generally occurs very close to the transaction closing, which is understandable, as the agent does not get involved  with the credit analysis or with the structuring process of the plan. However, considering the positive contributions the agents could provide, which would certainly reduce the time for completion, and also contribute to creating a minimum standardization in the Brazilian market, it would be a great step forward if creditors and debtors were prepared to include these agents early on.

The participation of an experienced and independent agent in the early stages of the recovery plan process can be a catalyst for the transaction, making it more efficient and effective for all parties.

TMF Group can act as an agent and counts on dedicated teams that understand the process and requirements. Our specialists will liaise with you and your advisors from first contact until successful completion of the transaction. Contact us for more information.

Interested in finding out more? Go to to make an enquiry. 

Written by

Karla Fernandes

Managing Director and Head of Capital Markets Services

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