Brazil's Tonon Seeks Bankruptcy Five Months After Restructuring

  • Company's benchmark dollar bonds plummet 35% Thursday
  • Sugar producer's debtload jumped 88% over the past year

Brazilian sugar and ethanol producer Tonon Bioenergia SA filed for bankruptcy protection just five months after restructuring its overseas bonds, citing the difficulty in rolling over debt as South America’s largest economy posts its worst contraction in 25 years.

Tonon said it submitted documents Wednesday to restructure all of its obligations in a process known locally as judicial recovery. The company’s net debt jumped 88 percent over the past year to 2.6 billion reais ($705 million) at the end of September.

"The main objective of this request is to restore the capital structure and preserve business continuity," Tonon said in a statement to regulators.

Tonon’s pain isn’t unique among Brazilian sugar producers. In all, 47 ethanol and sugar mills have closed and 70 filed for bankruptcy in Brazil since 2011 as the sweetener tumbled and ethanol prices were capped by the government. The company’s $289 million of unsecured notes due in 2020 plunged 35 percent to 16.6 cents on the dollar as of 11:32 a.m. in New York.

The notes were restructured in July after Tonon obtained a $70 million loan and persuaded creditors to allow it to skip interest payments on its senior unsecured notes. Local bond sales have dried up this year in Brazil as the economy heads to its longest recession since the Great Depression with inflation at a 12-year high, and servicing overseas debt has become more expensive after the real plunged almost 30 percent.

If the bankruptcy request is accepted by the court, Tonon will have to submit a restructuring plan to its creditors within 60 days. After that, creditors will have 120 days to discuss and approve or reject the proposal.

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