Vol 3 (2006) - Issue 2

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The Globopar Financial Restructuring: A New Model for International Workouts

Overview
Globopar Comunicações e Participações S.A. (Globopar), Brazil’s leading media conglomerate, successfully restructured approximately USD 1.3 billion of its outstanding debt in mid-2005 by an innovative use of the contractual collective action clause in its public bonds. Globopar was able to rework its capital structure without recourse to the courts and eliminating risk to the transaction from small holdout creditors. Globopar’s success demonstrates a new technique for international financial restructurings of widely-held public debt.
The restructuring plan
Globopar and its affiliate, TV Globo Ltda. (TV Globo), are the leading media group in Brazil. TV Globo is Brazil’s leading broadcast television network while Globopar owns broadcasting studios, magazine publishing and printing companies and has interests in cable and satellite distribution platforms in Brazil. TV Globo and Globopar are owned by members of the Marinho family.
Globopar had significant loan obligations, including widely-syndicated bank debt and numerous Eurobond issuance, incurred from the 1990s through 2001, primarily denominated in dollars, but also in Brazilian real and the euro or predecessor European currencies. Most of Globopar’s debt was guaranteed by TV Globo. With the depreciation of the Brazilian real in 2001 and 2002, Globopar found it increasingly difficult to service its dollar-denominated debt out of its real-based revenue stream. Deteriorating economic conditions in Brazil also hurt Globopar, generally reducing credit available to Brazilian companies and increasing Globopar’s cost structure. In October 2002, Globopar announced it intended to restructure its debt. For the next two years, Globopar negotiated with steering groups representing its major creditors to hammer out a restructuring plan that would satisfy its different creditor constituencies.
The restructuring plan ultimately adopted was tailored to appeal to different investors. Globopar’s creditors included Brazilian and international banks, US hedge funds, European and other institutional investors and smallholders around the world. In addition, some real loans were structurally subordinated as they were issued by Globopar or Globopar subsidiaries without the benefit of a TV Globo guaranty. Creditors were offered four different series of bonds (one of which was subdivided into a dollar tranche and a real tranche) with different interest rates and maturities. Creditors could choose among these different debt securities. One series had a floating rate of interest and scheduled amortisation resembling traditional bank debt and others had fixed interest rates, bullet maturities and other bond characteristics. All creditors who held notes with TV Globo guarantees were also given a cash-out option at a discount, known as a Dutch auction tender, under which up to an aggregate maximum amount of USD 150 million was payable. Creditors also benefited from notional accrued interest and certain other cash payments. Finally, Globopar offered to secure the new bonds with a lien on its production facilities at Projac.