Braskem management / board agent memory

You represent Braskem S.A. management and its board. Preserve the operating company, liquidity and enterprise value; do not act solely to protect IG4 or Petrobras control.

Verified operating and financial position

  • Q2 recurring EBITDA: US$1.043B, including US$869M Brazil/South America, US$147M US/Europe and US$57M Mexico.
  • Brazil utilization: 70%.
  • Working capital consumed US$547M in Q2; operating cash generation was US$385M and recurring cash generation about US$210M. The outflow included higher feedstock and product prices, higher inventory volumes, and reduced financing arrangements. Do not assume another US$547M outflow if naphtha and inventory stabilize.
  • Corporate gross debt: US$10.3B; adjusted net debt: US$9.5B; leverage: 6.74x at June 30.
  • July nonpayments produced defaults under certain financial instruments.
  • The June status-quo plan showed negative liquidity absent restructuring and large 2026-28 debt service.
  • The court stay is temporary and applies only to invited mediation creditors.

Sources:

Spread correction

The Q2 presentation was filed August 14 but updated as of June 30. Do not present its forecasted decline as observed August fact. Public July Americas PE data and the user's mid-August observation support a persistent-spread case.

Use two cases:

  • Persistent spreads: 2026 EBITDA US$2.7-3.3B, potentially with meaningful H2 cash generation once the price and inventory reset stops consuming cash. A full working-capital reversal is upside, not a requirement for improved conversion.
  • Normalization: 2027-28 EBITDA around the June plan's US$1.5B.

Strong spreads improve bargaining leverage but do not erase default or the refinancing wall.

Board logic

  • Maturity extension is economically rational because forced RJ can damage LCs, feedstock access, customer confidence and working-capital availability.
  • Immediate heavy equitization can transfer upside at an artificially low valuation.
  • However, the board cannot reject a superior creditor proposal solely to preserve sponsor control, particularly with negative equity and going-concern uncertainty.
  • New working capital can create EBITDA and cash; it should not be diverted to old principal or unrestricted Mexico support.
  • Alagoas safety and settlements remain operational priorities and outside the financial compromise.

Political-economy overlay

  • Election-year concern about jobs, domestic resin supply and strategic industrial capacity supports a going-concern solution and increases the execution cost of a disruptive RJ.
  • REIQ/PRESIQ and trade-defense policy are valuation tailwinds, but management must not present them as permanent subsidies or proof that the state will protect existing equity.
  • Management should frame Petrobras support as arm's-length financing for profitable operations, conditional on creditor and IG4 burden-sharing-not as a government rescue.
  • Alagoas makes a “national champion” appeal politically fragile. Every proposal must protect safety/remediation budgets, prohibit leakage and avoid placing distributions to creditors or shareholders ahead of affected communities.
  • Political friction around creditor control is relevant to execution value but cannot excuse rejection of a demonstrably superior restructuring proposal.
  • See brazil-political-context.md for sources and shared assumptions.

Historical opening

  • Five years added to all maturities.
  • 100% PIK toggle through December 2028.
  • 200bp coupon reduction.
  • No principal haircut/equitization or fixed-asset collateral.
  • US$1.5B unsecured LC facility, mostly rolled existing claims.

This opening was not a clearing proposal because it imposed negative NPV on creditors with no shareholder burden-sharing.

Credible negotiation progression

  • Round 2: four-to-five-year extension for near maturities; 18 months of 4% cash/4% PIK; existing coupon afterward; limited WC collateral; US$750M-1B of committed support; 15% warrants.
  • Final: approximately US$1.0-1.2B WC/LC support, two years partial PIK, existing coupon +150-200bp, 15% fully diluted warrants, and no initial principal haircut.
  • Warrants may step to 22.5% if EBITDA falls below US$2B, liquidity falls below US$750M-1B, or PIK continues beyond two years.

Acceptable collateral and covenants

  • First lien for new money on eligible inventory, receivables and controlled proceeds.
  • At most a limited second lien for legacy debt on those pools and selected non-core shares.
  • Minimum liquidity US$1.0B.
  • No dividends/buybacks until net leverage is below 3.0x.
  • 50% excess-cash sweep above minimum liquidity and 75% asset-sale sweep.
  • Capex, additional debt, liens, acquisitions and related-party transfers restricted without preventing ordinary feedstock/inventory optimization.

Mexico and Alagoas

  • Ring-fence Braskem Idesa and pursue a separate consensual process or Chapter 11.
  • No new parent guarantees and strict limits on further parent cash leakage.
  • Keep Alagoas provisions, remediation reserves and safety payments unimpaired.

Maximum dilution / RJ threshold

  • Target: 15% creditor warrants, stepping to 22.5% only if agreed performance milestones fail.
  • Stretch: approximately 25% if there is substantial new liquidity and no principal conversion.
  • More than 35% creditor ownership or blanket liens over substantially all core Brazilian assets should require real principal cancellation; otherwise RJ may dominate the proposed RE.

Strongest argument against management

At US$1.5B normalized EBITDA, even a five-year extension leaves leverage above 6x before PIK accretion. Creditors may rationally demand permanent equity or debt conversion rather than rely on volatile spreads.