Brazil’s Tonon gets tenders for 94.6% of 9¼% notes, avoids insolvency

By Toni Weeks

San Luis Obispo, Calif., July 7 – Tonon Bioenergia SA subsidiary Tonon Luxembourg SA completed an early settlement of its offer to exchange any and all of its outstanding $300 million 9¼% senior notes due 2020 for new step-up senior notes due 2020. The offer began on June 13.

As of the early settlement date, holders tendered $283,747,000, or 94.6%, of the outstanding $300 million of notes. The company has accepted and exchanged all of those notes.

When the offer was announced, the company said the exchange offer was conditioned on, among other things, the receipt of tenders for at least 95% of the notes. The issuer has waived that condition, according to a company news release.

As previously reported, holders who tendered prior to 11:59 p.m. ET on June 26, the early expiration date, or prior to 11:59 p.m. ET on July 13, the expiration date, and did not validly withdraw their tender prior to 11:59 p.m. ET on July 6, the withdrawal deadline, were to receive $1,000 principal amount of new step-up senior notes due Jan. 24, 2020 in exchange for each $1,000 principal amount of existing notes.

The issuer said it would not pay accrued interest on the existing notes exchanged for new notes on the settlement date for the exchange offer; however, interest on the new notes will accrue from Jan. 24, 2015, according to the news release.

The expiration date may be extended to a date that is no later than Aug. 24.

The new notes will have substantially the same terms as the existing notes except for interest payment terms and certain restricted payments covenants.

The new notes’ interest rate will be 7¼% from Jan. 24, 2015 through Jan. 23, 2017 and 9¼% from Jan. 24, 2017 through the maturity date, Jan. 24, 2020.

The issuer will have the option to defer cash payments of interest on the new notes. Interest payments due on or prior to Jan. 24, 2017 will be deferrable at the issuer’s sole discretion. For payments due after Jan. 24, 2017, the issuer may defer the payments to the maturity date if, after giving effect to any such payment, the amount of cash on its balance sheet as of the last day of the fiscal quarter immediately preceding that interest payment date would be less than R$100 million.

The company said previously that the failure to reach an acceptable threshold in the exchange offer would have left it in a “precarious liquidity posture,” potentially impacting operations and requiring a court-supervised insolvency proceeding.

Consent solicitation

The issuer also announced it received enough consents to amend the existing notes and the indenture governing the existing notes.

The amendments will eliminate or waive substantially all of the restrictive covenants, eliminate some events of default and modify or eliminate certain other provisions.

The amendments required the consent of the holders of a majority of the outstanding notes, and the company said that the amendments were approved on the early settlement date by 94.6% of the outstanding principal amount of existing notes.

Missed interest payment made

Tonon Bioenergia also said it made the interest payment on its outstanding $230 million 10½% senior secured notes due 2024 that was due on May 14 prior to the expiration of the applicable grace period.

Loan

In connection with the exchange offer, the issuer also obtained a $70 million loan agreement from some institutional investors and noteholders, including certain funds managed by Gramercy Funds Management, LLC.

According to the news release, the issuer borrowed $67 million on the early settlement date, and the remaining $3 million may be drawn under certain conditions.

The loan is unconditionally guaranteed by Tonon Bioenergia and its parent Tonon Holding SA and secured by a fiduciary lien over the industrial equipment of the company’s Santa Candida and Vista Alegre mills and also a mortgage over the land of the Santa Candida and Vista Alegre mills.

The loan bears 12% interest and matures on May 14, 2019.

The lenders also entered into an agreement that provides for a distribution of 20% of adjusted EBITDA in excess of R$475 million generated in any fiscal year beginning with the fiscal year ending March 31, 2016 and ending in 2019, if not terminated prior to such date.

The proceeds of the loan will be used to repay short-term debt and for general corporate purposes.

The information agent for the exchange offer is KCC (917 281-4800 for brokers and banks or 888 733-1431 for all others).

Tonon Bioenergia is a sugar, ethanol and energy producer based in Sao Paulo.

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