2017 will be marked by a wave of requests for judicial reorganization in the country.

By Aluísio Alves

SAO PAULO (Reuters) - The stabilization of the Brazilian economy will not come in time to prevent major companies in the country from filing for bankruptcy protection in the first half of 2017, executives from banks and law firms told Reuters.

The new requests, which are expected to include companies listed on the Bovespa stock exchange, will partly reflect the refusal of major banks to continue rolling over debt, since the repayment capacity of the debtors has not improved, the sources said.

At the top of the list of companies that may announce in the coming weeks that they have filed for bankruptcy protection are construction and real estate development firms, oil and gas supply companies, and units of conglomerates investigated by Operation Lava Jato.

In the first group, the leading candidate is PDG Realty, which this month suspended the early redemption of Real Estate Receivables Certificates scheduled for last week due to a lack of funds. The company had already announced earlier this month that it was in default on interest payments for its 3rd CRI issuance. The company has denied having made a decision on the matter.

But this is unlikely to be the only case in the sector, according to a partner at a large law firm representing creditors, given that some construction companies simply haven't been able to sell assets to raise cash and honor debt rollover agreements with banks.

"The real estate sector alone should have at least two major names in bankruptcy protection in the first half of the year," the professional told Reuters, on condition of anonymity and avoiding naming names.

Last week, the president of the Brazilian Association of Real Estate Credit and Savings Entities (Abecip), Gilberto de Abreu Filho, himself admitted that this must be the case for some companies.

"It was expected that construction companies would be able to resolve bank debt by generating cash, which, in some cases, did not happen," said Abreu Filho. "In the first half of the year, some may go into (judicial) recovery," he added.

According to a legal source and an executive from a large private bank, this should have already been the outcome for some companies, but the banks took the initiative to roll over debts to avoid accumulating provisions for losses, following the gigantic bankruptcy cases of Sete Brasil and the telecommunications company Oi, which together total approximately 84 billion reais in debt.

Less than two months after the oil exploration rig charterer filed for bankruptcy protection last year, with total debts exceeding 19 billion reais, the telephone operator used the same mechanism in the largest bankruptcy filing in the country's history, with debts of 65 billion reais.

This is without mentioning that in 2015, the construction companies OAS and Galvão Engenharia activated the mechanism, following the financial difficulties stemming from their involvement in the corruption scandals investigated by Operation Lava Jato.

As a consequence of these cases, the reserves that banks set aside to cover losses from defaults have increased. According to Economatica, from July to September, Itaú Unibanco, Banco do Brasil, Bradesco, and Santander Brasil made provisions for expected losses from defaults totaling 22,76 billion reais, the second-highest amount in a decade.

"Now that the largest provisions have been made, the banks will let things roll," said the banking source, referring to future bankruptcy filings.

The largest volume of requests for judicial protection against creditors by large companies is expected to occur at a time when total bankruptcy filings tend to stabilize, given the gradual easing of credit conditions and falling interest rates.

"I don't see a worsening of the situation in requests for judicial reorganization and bankruptcies this year," said the chief economist of Serasa Experian, referring to the total number of cases.

Last year, according to the institution, total requests jumped 44,8 percent to 1.863, a record for the series that began in 2006. Requests for bankruptcy protection from large companies alone, with revenues exceeding 50 million reais per year, totaled 227 in 2016, compared to 224 in 2015.

According to sources consulted by Reuters, this situation is explained by the fact that small and medium-sized enterprises, having less financial leeway, were hit more quickly by the recession.

"Of the smaller ones, those that were going to go bankrupt or enter receivership, already have," said the executive from the large private bank.

Larger companies, on the other hand, managed to extend negotiations with banks, some betting that they would receive new resources from strategic investors.

"That's not what happened; some companies are not yet attractive enough for investors," said one of the legal sources.