Tonon Bioenergia SA, a Brazilian sugar and ethanol producer, hired investment firm Blackstone Group LP to advise it on a possible debt restructuring, according to two people with knowledge of the matter.
The company has also signed up New York-based Davis Polk & Wardwell LLP to act as its legal adviser for negotiations with secured and unsecured bondholders, according to one of the people, both of whom asked not to be identified because the information is private.
The restructuring may seek new financing for Tonon, and there is at least one investor in advanced talks with the company, one of the people said. Tonon has about 250 million reais ($83 million) in short-term debt with 11 banks as well as $530 million of international bonds.
Peter Rose, a spokesman at Blackstone, declined to comment. Tonon investor relations manager Marcelo Miyake and Davis Polk spokeswoman Susan Peters didn’t respond to telephone and e-mail messages seeking comment
Tonon’s $300 million of 9.25 percent notes due in 2020 have lost more than 80 percent since peaking in July and traded Thursday at about 13 cents on the dollar, dropping 3 percent.
The Blackstone mandate was reported earlier by the distressed-debt newsletter REDD Intelligence.
Tonon’s credit rating was downgraded one step to CCC, seven levels below investment grade, by Fitch Ratings on Wednesday. Fitch cited concern about the Bocaina, Brazil-based company’s short-term liquidity position and escalating refinancing risks due to its inability to generate positive free cash flows.
“Tonon has been finding it difficult to roll over its maturing obligations with new long-term loans as bank lending activity in the sector has been focused on short-term borrowings,” analyst Claudio Miori said in the report.
Brazil’s sugar and ethanol producers have been struggling as a tumble in sugar prices to a six-year low after the worst drought in eight decades and a cap on domestic ethanol prices wreak havoc on producers’ ability to meet obligations. Since 2011, 47 ethanol and sugar mills have closed and 70 are under bankruptcy protection, according to Unica, Brazil’s sugar-cane millers group.
Tonon’s ordeal follows defaults by Grupo Virgolino de Oliveira SA in January and Aralco SA Acucar e Alcool in March 2014.