Courting Trouble

Sep 1, 2005

Brazil has made significant strides toward improving creditor rights in bankruptcy cases, but creditors gripe that it's still tough to get repaid.

by Maria O'Brien

Robert Rauch
Brazilian airline Varig's June bankruptcy filing hardly surprised anyone, since it's been in trouble for years. But the decision by Varig's new managers to file for protection from its creditors was significant because it came just days after Brazil passed new bankruptcy laws.

Varig's $4.8 billion debt load makes this the largest Brazilian restructuring since the government spent $6.39 billion to bail out state-owned commercial bank Banco do Brasil in 1996. The Varig bankruptcy will pit Brazil's largest and oldest airline against the government – Varig's largest creditor – as well as other heavyweights, such as Varig's pension fund Aerus and foreign-owned leasing agents at General Electric, Boeing and AIG.

"Varig is going to be a big test for Brazil," says Leonardo Pereira, chief financial officer for Brazilian cable TV operator Net Serviços, which completed a $450 million out-of-court debt restructuring of...

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