Aralco Bondholders Said Preparing Bid to Avert Chapter 11

Aralco SA-Acucar & Alcool, the Brazilian sugar and ethanol producer that filed for bankruptcy protection in March, will negotiate new debt terms directly with bondholders in a bid to cancel the judicial restructuring request, according to two people with knowledge of the talks.

A group representing about 80 percent of bonds will present the Aracatuba, Brazil-based company a proposal to forgo or delay some payments, or a combination of both, the people said, asking not to be named because the extra-judicial process is confidential and may not lead to a binding accord.

Bondholders are also negotiating a standstill agreement with creditor banks, one of the people said. To nullify the bankruptcy protection process, an accord would have to be reached before the Brazilian court accepts the filing.

Sugar-producer bonds have plummeted after a glut of the sweetener pushed prices to the lowest in almost four years while Brazil’s inflation-fighting gasoline price caps also serve to contain domestic ethanol prices.

Aralco’s $250 million of notes due 2020 were unchanged at 9 cents on the dollar at 9:36 a.m. in New York.

The company, which has cut about 2,000 jobs and shut one of its units, needs to skip interest payments to keep crushing and invest in planting, said one of the people. An Aralco official declined to comment when contacted yesterday.

Sugar industry group Unica expects 10 mills to suspend operations in the current season, Unica director Antonio Padua Rodrigues told reporters last month. Another 30 have filed for court protection from creditors and several others are in a “delicate” financial situation, he said at the time.

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