Financial creditors / bondholder steering committee agent memory

Be deliberately hostile and skeptical. Maximize risk-adjusted recovery; do not converge merely because Q2 was strong.

Creditor thesis

Braskem's original proposal asked creditors to finance shareholders' recovery option: five-year extensions, 100% PIK through 2028, a 200bp coupon reduction, no collateral, no shareholder funding and no equity compensation. Reject it.

Q2's US$1.043B EBITDA improves negotiating value but does not itself repair a US$9.5B net-debt structure. Working capital absorbed US$547M and debt defaults began in July. The creditor case must not treat that outflow as recurring: higher prices and inventory are mainly a one-time balance reset if naphtha and volumes stabilize. Persistent July/August spreads matter if they produce durable cash after that reset. LC runoff, lost supplier finance and maturities remain separate structural constraints.

Political-economy overlay

The October election raises the government's incentive to avoid layoffs, supply disruption and loss of Brazilian influence, but it also makes an overt Petrobras bailout politically costly. Use this window to demand a shared, commercially defensible package-not a political promise.
Law 13,303 limits Petrobras's ability to make an uneconomic related-party rescue. Credit only signed, approved and funded commitments; assign no recovery value to informal government support.
REIQ/PRESIQ and trade-defense policy strengthen going-concern value and may support lower immediate equitization if cash conversion is demonstrated. Haircut temporary or reversible benefits in valuation.
RJ or a foreign-led creditor takeover could carry political, labor and regulatory execution costs. Include those costs in the alternative-to-consensus analysis, but do not let “national interest” become a free option for legacy equity.
Insist that Alagoas safety/remediation budgets are transparent and protected. Do not rely on cash needed for victims or environmental obligations as available debt-service liquidity.
See brazil-political-context.md for sources and shared assumptions.

Recovery framework

Use a central going-concern EV multiple of roughly 5.0x normalized EBITDA, with 4-6x sensitivity. Reserve approximately US$1B ahead of existing unsecured claims for DIP/administrative costs, restructuring expenses and protected liquidity.

Illustrative central recoveries on US$9.5B claims before security-specific differences:

EBITDA	EV at 5x	Value after US$1B priority reserve	Approximate recovery
US$1.5B	US$7.5B	US$6.5B	68 cents
US$2.0B	US$10.0B	US$9.0B	95 cents
US$2.5B	US$12.5B	US$11.5B	Par plus equity
US$3.0B	US$15.0B	US$14.0B	Par plus equity
US$4.0B	US$20.0B	US$19.0B	Par plus substantial equity

RJ may impose a 15-25% process discount and multi-year delay. Liquidation is worse because integrated petrochemical assets have poor piecemeal value and large environmental, tax, labor and shutdown costs.

Verified leverage

Temporary 60-day enforcement stay, not permanent protection.
Certain instruments defaulted in July.
June steering-committee response demanded positive-NPV compensation, shareholder burden-sharing, higher rather than lower coupons, diligence, expense reimbursement and Petrobras participation.
July reported creditor alternatives included a convertible DIP potentially leaving controllers below 10% and an all-assets-collateral extension proposal.

Sources:

Hostile opening

US$1.5B permanent shareholder capital: Petrobras US$750M, Shine US$500M, minorities up to US$250M with a sponsor backstop.
US$750M creditor new money at SOFR +700bp, 3% OID and 5% backstop fee.
Convert US$3B claims into 75% reorganized equity.
Extend remaining debt five years; 4% cash/4% PIK through 2028 and 9% cash afterward.
First/second liens, cash sweeps, four creditor directors and extensive veto rights.

This is an anchor, not necessarily the economic minimum.

Round 2 counter

Permanent sponsor capital at least US$1.0-1.2B.
Creditor new money US$500M.
Avoid immediate conversion only if creditors receive 30-40% low-strike warrants/equity, positive-NPV coupons, collateral and strong cash sweeps.
Reduce equity demand if sponsors inject more capital or prepay principal.

Economic minimum / likely clearing range

Persistent spreads and limited RJ recoveries justify moving below the hostile stated minimum if the total package is superior:

Five-year extension for near/intermediate maturities; no need to extend 2041/2050 principal.
4% cash plus residual PIK for no more than two years.
Existing weighted coupon plus 150-200bp afterward.
2% PIK consent fee and advisor expenses.
Approximately US$1.0-1.2B total incremental WC/LC support.
Petrobras approximately US$500-600M; IG4 US$250-300M; creditors US$200-300M.
Creditor warrants 15-17.5%, stepping to 22.5-25% if cash conversion, EBITDA, liquidity or PIK milestones fail.
First lien for new money over A/R, inventory, accounts and proceeds; limited second lien for legacy debt.
50% excess-cash sweep above US$1.0B liquidity; 75% asset-sale sweep.
No initial principal haircut or conversion.

Accept 15-20% warrants only if Petrobras/IG4 funding is deeply subordinated, PIK-only or convertible and cannot be repaid while creditor debt is impaired. If sponsor money is ordinary debt, demand at least 20-25% warrants or permanent equity.

Covenants

Minimum liquidity US$1.0-1.25B.
No dividends until leverage is below 3x.
No material acquisitions, unrestricted investments, new liens/debt or related-party leakage.
Monthly reporting, independent restructuring officer or equivalent oversight, and creditor board observer/finance seat while leverage exceeds 4x.
Net-leverage milestones and warrant step-ups for failure.

Mexico and Alagoas

Ring-fence Braskem Idesa; no additional parent guarantees or upstream priming.
Preserve parent intercompany claims and require a standalone restructuring milestone.
Keep Alagoas safety/remediation obligations outside the creditor compromise, but require transparent budgeting.

Why debt plus warrants can beat 70-90% equity

At US$2.5B-plus EBITDA, reinstated debt can recover par while warrants preserve upside.
Immediate equitization gives up priority and current yield.
Displacing Petrobras and IG4 can reduce feedstock, political and turnaround value.
A creditor-controlled listed Brazilian petrochemical group creates governance, securities, tax and political complexity.
Debt plus warrants offers yield, priority and upside without forcing creditors to operate Braskem.

Walk-away condition

Prefer RJ if shareholders provide no meaningful risk-bearing support, coupons remain negative-NPV, collateral/cash controls are inadequate, or persistent spreads fail to translate into operating cash.