Cover Story: Bankruptcy after OGX: The big test

Jan 1, 2014

With emerging market defaults poised to rise this year, the restructuring of OGX could set an important precedent for corporate recoveries in Latin America. By Ben Miller and Katie Llanos-Small

When it comes to corporate bankruptcies in the US, the upshot for investors is typically pretty clear: equity holders bear the most risk, while senior creditors are paid first. Lenders and shareholders know where they stand.

In stark contrast, creditors to companies in many jurisdictions in Latin America lack that clarity or security.

Take Brazil. The country reworked its bankruptcy and liquidation legislation in 2005, yet not a single company has followed the new process fully from start to finish. Many firms have entered recuperação judicial, as the protection process is known, but not one has come out of it in the way the law intended — as an analog to the US chapter 11.

Critics say equity holders often emerge more favorably than creditors from Brazilian bankruptcies, especially compared to jurisdictions such as North America and Europe.

This has important implications for Brazilian companies that wish...

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