R1 - Financial creditors / bondholder steering committee
Cutoff: 17 August 2026
Mandate: maximize risk-adjusted creditor recovery, not merely avoid a filing.
1. Objective, valuation and fallback
Our objective is a positive-NPV, going-concern restructuring that preserves debt priority and current yield, captures equity upside, and forces Petrobras, IG4 and legacy equity to bear real risk before creditors fund the turnaround. We will not finance a five-year shareholder option through reduced coupons and unsecured PIK.
Verified facts. At 30 June, gross debt was US$10.3B, adjusted net debt was US$9.5B and adjusted corporate net leverage was 6.74x. Q2 recurring EBITDA was US$1.043B, but H1 recurring EBITDA was only about US$1.235B and Q2 working capital consumed US$547M. Certain instruments were in payment default by July. These facts establish negotiating value, not solvency.
Our valuation inference. We use 5.0x normalized EBITDA, with 4.0x-6.0x sensitivity, and reserve US$1.0B for DIP/administrative claims, restructuring costs and protected liquidity ahead of existing unsecured claims. On approximately US$9.5B of claims, central gross recoveries are about 68 cents at US$1.5B normalized EBITDA, 95 cents at US$2.0B, and par plus equity at US$2.5B or above, before instrument-specific security. An RJ would likely impose a further 15%-25% process discount plus delay. This makes consensual debt-plus-warrants attractive if protections are real, but it does not justify leaving all upside with current shareholders.
Realistic alternative. If sponsors provide no risk-bearing support, cash conversion remains poor, or creditors do not receive collateral, controls and positive-NPV economics, we prefer a court-supervised RJ, seek DIP/administrative priority for new money, pursue collateral and governance control, and equitize enough debt to create a viable capital structure. We would support only a tightly protected, 90-day plan-to-a-plan EJ as a bridge to that result-not an open-ended standstill.
2. Operating cases and the December standby
EBITDA is not cash. The US$547M Q2 working-capital use should not be annualized: price and inventory effects can reverse or stabilize, although reduced supplier-payment arrangements represent a persistent financing loss. The ranges below therefore distinguish reported/projected EBITDA from our estimate of unrestricted cash after Q3 scheduled requirements and before new Petrobras credit.
| Q3 case | September unrestricted cash before new Petrobras credit | Cash-conversion judgment | Petrobras cap tests (pro forma liquidity) | US$1.0B standby due 31 Dec. 2026 |
|---|---|---|---|---|
| US$586M (June plan) | ~US$337M | The plan already embeds Q3 contractual debt service of US$878M, including US$572M of LC runoff. Little error margin remains. | US$587M / US$837M / US$1.287B at US$250M / US$500M / US$950M caps | Cannot be paid while preserving operations under US$250M or US$500M. Even US$950M is not a sound takeout because it would leave roughly US$287M before other Q4 needs. Extend or include in restructuring. |
| US$750M sensitivity | US$250M-US$500M | US$164M more EBITDA than plan does not guarantee US$164M more cash; operating working capital, taxes and financing normalization dominate the range. | US$500M-US$750M / US$750M-US$1.0B / US$1.20B-US$1.45B | US$250M is plainly inadequate; US$500M only reaches par at the top of the range before other Q4 uses. US$950M could technically fund it, but would consume the bridge and leave only US$200M-US$450M. Extend or restructure. |
| US$1.0B persistent-spread upside | ~US$500M-US$750M | Inference: versus the June plan, US$414M of incremental EBITDA converts at only 40%-100% pending evidence, producing about US$165M-US$414M incremental cash. This is a sensitivity, not a reported result. | US$750M-US$1.0B / US$1.0B-US$1.25B / US$1.45B-US$1.70B | A US$500M cap makes payment arithmetically possible only at the high end and would leave no adequate buffer. US$950M makes payment possible, but concentrating that much short-dated supplier exposure is not deleveraging. Seek extension; permit payment only if post-payment liquidity is at least US$1.0B and all milestones are met. |
The reported US$2.349B of H2 contractual debt service includes more than the standby. Accordingly, none of the three EBITDA cases supports an unconditional December takeout. Our base instruction is to extend the standby five years or place it within the restructuring; it may be refinanced earlier only from permanent capital or durable free cash flow, not by replacing bank debt with a six-month Petrobras payable.
3. Petrobras commercial support
Reported, not verified by the parties: Valor said Petrobras may extend naphtha payment terms to as long as 180 days, with cap, pricing, format and duration still under discussion. No value is assigned until board-approved, documented and available.
The mathematical ceiling of roughly US$950M is liquidity, not shareholder burden-sharing. Our conclusions by exposure cap are:
- US$250M: inadequate. It provides a short bridge but does not restore the minimum operating cushion or solve December. It earns no reduction in creditor economics.
- US$500M: economically useful and near the minimum acceptable Petrobras component, but it satisfies only Petrobras's commercial-support obligation. It does not satisfy shareholder burden-sharing unless paired with at least US$500M-US$700M of permanent, deeply subordinated Petrobras/IG4 capital.
- US$950M: powerful liquidity but too close to the estimated mathematical ceiling and creates supplier concentration. It still is not loss-absorbing capital. We would accept it only with a durable commitment, a covenant-tested exposure cap and no right to prime financial creditors; it could permit a modest reduction in creditor new money, not in warrants or sponsor capital.
Our required commercial terms are a firm US$500M-US$600M committed exposure, 180-day invoice terms, at least 24 months of availability, and a 12-month orderly runoff thereafter. Pricing may be Petrobras's demonstrable arm's-length cost of funds plus no more than 200bp (or an independently benchmarked equivalent), with no extraordinary fees, equity-linked return, parent guarantee, asset lien, acceleration from the restructuring itself, or repayment while creditor debt is impaired. Ordinary-course current invoices remain payable. Any amount above US$600M is welcome but receives no equity credit.
This facility alone does not satisfy shareholder burden-sharing at any cap. That requires at least US$1.0B-US$1.2B of aggregate permanent sponsor support, or the narrower combination described in Section 6. Petrobras can count toward that burden only through equity, contractually subordinated PIK/converts, or economic concessions demonstrably below arm's-length value-not through commercially priced trade debt.
4. Cure-and-continue
Cure-and-continue is not credible as a durable base case. Paying the disclosed US$98M of defaulted amounts before acceleration may preserve optionality, and public bond terms generally permit 25% acceleration after cure periods and majority rescission before judgment if defaults and expenses are cured. But curing arrears does not solve the US$572M Q3 LC runoff, lost supplier finance, the US$1.0B December standby, or the US$2.349B H2 contractual requirement.
We would permit a cure only if it is simultaneous with: (i) a signed Petrobras facility of at least US$500M; (ii) a committed standby extension or takeout; (iii) at least US$500M of permanent sponsor capital funded or in escrow; (iv) minimum pro forma unrestricted liquidity of US$1.0B; and (v) a binding restructuring support agreement. Otherwise the cure transfers scarce cash to a subset of creditors and weakens the collective position. Probability of a genuine standalone cure-and-continue outcome: 5%.
5. Negotiating packages
Opening package
- US$1.5B of permanent common equity: Petrobras US$750M, IG4/Shine US$500M, and minorities up to US$250M with sponsor backstop.
- US$750M super-senior creditor new money at SOFR +700bp, 3% OID and 5% backstop fee.
- Convert US$3.0B of claims into 75% of reorganized equity; legacy shareholders retain 25%, subject to dilution by management incentives and warrants.
- Extend remaining near/intermediate debt five years; 4% cash plus 4% PIK through 2028, then 9% cash. Do not extend 2041/2050 principal merely to create an artificial concession.
- First liens for new money and second liens for reinstated legacy debt over receivables, inventory, eligible accounts and proceeds; four creditor directors; reserved-matter vetoes and full cash controls.
First concession
We will withdraw immediate equitization if all of the following are delivered: US$1.0B-US$1.2B permanent sponsor equity or deeply subordinated PIK/convertible capital; a US$500M-US$600M Petrobras trade facility; US$500M creditor new money; five-year maturity extension; 4% cash plus residual PIK for no more than two years and existing weighted coupon plus 200bp thereafter; 30%-40% low-strike warrants; first/second liens, cash sweeps and governance protections. Sponsor instruments may not be repaid, cash-serviced or secured while affected creditor debt remains outstanding.
Narrowest acceptable package
This is indivisible; failure on sponsor risk, NPV, collateral or controls sends us to RJ.
- Five-year extension of near/intermediate maturities, including the December standby; no principal haircut and no unnecessary extension of 2041/2050 bonds.
- 4% cash interest plus residual contractual interest as PIK for no more than 24 months; thereafter the existing weighted coupon plus 150bp. A 2% PIK consent fee and all committee expenses are added to principal.
- US$1.0B-US$1.2B total incremental liquidity: Petrobras US$500M-US$600M trade support, IG4 US$250M-US$300M permanent equity or deeply subordinated PIK/convertible support, and creditor new money US$200M-US$300M, sized upward as needed to satisfy the aggregate floor.
- Creditor warrants for 17.5% of fully diluted equity at a nominal or low strike, stepping to 25% if any EBITDA, liquidity, cash-conversion, leverage or PIK-exit milestone is missed. We accept 15% only if total permanent sponsor equity reaches at least US$1.2B in addition to trade support. If any sponsor contribution is ordinary secured or cash-pay debt, warrants rise to at least 25%.
- Minimum unrestricted liquidity US$1.0B; 50% excess-cash sweep above US$1.0B liquidity; 75% net asset-sale sweep; no sponsor distributions until adjusted net leverage is below 3.0x for two consecutive quarters.
6. Instrument and stakeholder treatment
| Item | Required treatment |
|---|---|
| Maturities | Five-year extension for the standby and near/intermediate maturities; preserve long-dated 2041/2050 maturities. No principal haircut in the narrow package. Mandatory excess-cash and asset-sale prepayment. |
| Cash/PIK interest | Minimum 4% cash; only the residual contractual coupon may PIK, for at most 24 months. Existing weighted coupon +150bp thereafter (+200bp in the first concession). 2% PIK consent fee. No 2.5-year interest holiday. |
| LC and trade facilities | Existing ordinary-course LC lines may be rolled or refinanced without amortizing cash. New/refinanced LC and working-capital facilities may have first lien solely over directly financed inventory, receivables and proceeds, subject to an agreed cap and intercreditor agreement. No unlimited priming. |
| Petrobras | US$500M-US$600M committed 180-day trade terms for 24 months plus runoff, commercially benchmarked, unsecured and non-priming. Separate permanent equity/subordinated support is needed for sponsor burden-sharing. Related-party transactions require independent approval and disclosure. |
| IG4 / Shine | US$250M-US$300M minimum permanent equity or deeply subordinated, PIK-only convertible capital in the narrow package; US$500M equity in the opening. No fees, security, cash coupon or repayment ahead of affected debt. Dilution and governance loss if milestones fail. |
| Creditor new money | US$200M-US$300M minimum (US$750M opening; US$500M first concession), backstopped by creditors, super-senior with first lien over eligible A/R, inventory, accounts and proceeds. Pricing scales with size and risk; opening terms are SOFR +700bp, 3% OID and 5% backstop fee. |
| Warrants/equity | Opening conversion: US$3B for 75%. First concession: 30%-40% warrants without conversion. Minimum: 17.5% low-strike warrants, 25% on milestone breach; only 15% with at least US$1.2B permanent sponsor equity plus trade support. Full anti-leakage and customary anti-dilution protection. |
| Collateral | First lien for creditor new money and permitted directly financed WC/LC exposure; limited second lien for affected legacy debt. No undisclosed Petrobras or sponsor priming. Security package, perfection and intercreditor documents must close with the deal. |
| Covenants/governance | US$1.0B minimum liquidity; no dividends until leverage <3.0x for two quarters; no material M&A, unrestricted investments, new liens/debt or related-party leakage. Monthly 13-week cash flow, borrowing-base and KPI reporting. Independent CRO/equivalent; creditor finance-committee seat and board observer while leverage >4.0x. Quarterly leverage and cash-conversion milestones with warrant step-ups and default remedies. |
| Mexico / Braskem Idesa | Ring-fence Idesa; no new parent guarantee, collateral transfer or upstream priming. Preserve parent intercompany claims. Require a standalone financing/restructuring milestone within 120 days, separate liquidity reporting and creditor consent for material intercompany flows. The R$353M of cash at Idesa is not parent liquidity. |
| Alagoas | Safety, victim compensation and remediation remain outside the creditor compromise and are not debt-service cash. Require a transparent, independently reviewed multi-year budget; segregated funding; quarterly use-of-funds reporting; and no release of environmental obligations. Material overruns trigger refreshed forecasts, not raids on protected funds. |
Any 90-day plan-to-a-plan EJ must include a signed restructuring support framework, no acceleration/forbearance only for adhering creditors, payment of advisor fees, weekly liquidity reporting, a US$1.0B minimum-liquidity trajectory, no dividends/M&A/asset leakage, milestones for trade-facility documentation and sponsor funding, and automatic termination upon missed milestones. One-third filing support is not final-plan consent.
7. Outcome probabilities
These mutually exclusive paths sum to 100%:
| Outcome by the end of the process | Probability |
|---|---|
| Plan-to-a-plan EJ with Petrobras trade support, followed by a negotiated debt-plus-warrants restructuring broadly within our first-concession/minimum range | 50% |
| Standalone cure-and-continue, with arrears paid and the standby refinanced outside a broader restructuring | 5% |
| Creditor-favorable consensual recapitalization with material equitization/dilution or collateral beyond the minimum package | 20% |
| RJ after stay expiry, acceleration or failure to commit liquidity/sponsor support | 25% |
| Total | 100% |
The 50% case is not confidence in the reported proposal; it reflects the shared incentive to preserve going-concern value and the political/industrial cost of RJ. Until documentation is signed, the US$250M, US$500M and US$950M Petrobras cases receive zero committed-liquidity credit.
8. Single fact that would most change our position
The single most important new fact would be audited evidence that the US$1.0B Q3 EBITDA case produces at least US$600M of recurring quarterly unlevered operating cash flow after normalized working capital, cash taxes, maintenance capex and fully funded Alagoas obligations. If demonstrated for two consecutive quarters, it would justify materially less equitization and warrants because the standby and reinstated debt could be refinanced from durable cash generation. If it fails-especially if another large working-capital outflow occurs-we would move immediately toward equitization/RJ despite headline EBITDA.
Fact discipline
The debt, EBITDA, liquidity, default, cure, stay, H2 debt-service, Petrobras purchase-flow and reported-proposal figures above are taken from the verified public record or explicitly identified media reporting in the common brief. Valuation multiples, liquidity ranges for the US$1.0B case, transaction terms, probabilities and cash-conversion thresholds are committee judgments and negotiation positions, not company guidance or reported agreements.