Construction company Andrade Gutierrez is on the ropes.

247 - Two months after defaulting on a US$345 million (R$1,35 billion) debt, the construction company Andrade Gutierrez has still not managed to reach an agreement to raise new money in the market and honor the commitment. Involved in Operation Lava Jato and with R$508 million in assets frozen by the Federal Court of Accounts (TCU), the construction company – which was once the second largest in the country – is relying on the goodwill of its creditors to avoid further early debt payments.

The construction company from Minas Gerais, whose owners are longtime allies of Aécio Neves, was the main builder of the Administrative City, the seat of the Minas Gerais government, a project of the government of Tancredo Neves' grandson, and which is accused of being one of the biggest bribery schemes in Brazilian political history. Aécio's allies may be close to bankruptcy because of the initiative of the defeated candidate in 2014, who launched the country into the adventure of the coup against democracy and Operation Lava Jato, which brought the company and dozens of others to their knees.

According to reporter Renée Pereira, the situation is dramatic. Talks with the investment management firm Pimco to obtain a loan to alleviate the company's situation are stalled due to collateral issues. 

The initial idea was to issue new bonds worth US$540 million (R$2,1 billion) to roll over the overdue debt and give the construction company new breathing room. In May, Andrade's board of directors approved the bond issuance in the international market and provided personal guarantees from shareholders and real guarantees from the company to make the operation viable. 

However, with the drop in the share price of CCR, Andrade's main asset used as collateral for the new loan, the fund began demanding more from the construction company, which does not have much room to improve the conditions. 

Given this situation, the alternative sought by Pimco is to increase creditor participation in a new issuance, in order to reduce risks. This means defining a new term and price for the bonds, as well as a minimum amortization (approximately 10%) of the securities, under reasonable conditions for creditors. 

This negotiation, however, has also not been easy, as it involves a large number of investors, according to sources close to the matter. When contacted, Pimco did not respond and Andrade said he would not comment. 

Last week, the Moody's rating agency downgraded the construction company's rating to C – the worst rating on the scale. The rating reflects the company's situation, which does not have sufficient cash resources to cover its debt. As of September, the latest available data, the contractor had R$ 665 million in cash. Moody's estimates that at least part of this amount has been consumed "due to the company's negative cash flow of around R$ 250 million per quarter". 

The situation isn't worse only because the construction company is liquidating its assets – it managed to raise R$ 750 million in the process. And it closed R$ 4,4 billion in new contracts, but with payment terms that extend for years. Despite the seemingly high value of these new contracts, the company's project portfolio fell to R$ 18,3 billion in September 2017, according to Moody's. In 2014, when construction companies were involved in the Lava Jato corruption scandal, the company had a portfolio of R$ 30 billion.

One of the latest deals was the sale of a 12,69% stake in Cemig – which may have generated almost R$ 600 million for the company. Before that, the company had already divested its stakes in Oi and Sanepar, the sanitation company of Paraná. Also still up for sale are a stake in the Beira-Rio stadium in Porto Alegre and an indirect stake in the Santo Antônio hydroelectric plant on the Madeira River – currently under negotiation with Chinese groups.

The situation is close to being desperate.

Read here.