BHP Said to Seek Samarco Restructure as Vale Wants More Time – by R.T. Watson and David Stringer (Bloomberg News – November 15, 2016)

BHP Billiton Ltd. is pushing to restructure debt at its Samarco venture as joint owner Vale SA prefers a grace period on payments until it secures licenses to resume mining, people familiar with the matter said.

While the owners have said they don’t intend to cover Samarco’s more than $3 billion in debt, they’re at odds over how the Brazilian iron miner should approach banks and bondholders after a year-long halt in output, the people said, asking not to be identified because talks are private. BHP’s preference for restructuring now would mean a haircut for creditors, the people said.

Samarco Mineracao SA, as the joint venture is formally known, has been shut since a tailings dam ruptured a year ago. The accident, described by the government as Brazil’s worst ever environmental disaster, killed as many as 19 people and polluted waterways in two states. The venture has already missed two bond coupon payments. Its bonds due 2022 are trading at about 35 cents on the dollar, down from 39 cents at the end of last month.

The differing approaches to Samarco’s debt are grounded in the two companies’ reliance on Brazil. Samarco is the extent of BHP’s presence in the country and the Melbourne-based company is reassessing its shared-ownership structures globally. For Vale, Brazil is its corporate headquarters, center of operations and a significant source of financing.

Both BHP and Vale have said that while they will help fund cleanup and reparations, they wouldn’t cover Samarco’s debt payments. Both want Samarco to begin operating again so that the company can both fund the cleanup and meet its payments without their help.

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