UTC files for bankruptcy protection

September 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

September 2017 Issue

In a bid to restructure its £1.1bn debt, Brazilian construction group UTC Participações SA (UTC Group) – including 14 of its subsidiaries – has filed for bankruptcy protection.

The UTC Group’s decision to file for judicial reorganisation has been blamed on a major reduction in contracts due to ongoing scrutiny under the Operation Lava Jato bribery and corruption investigation, as well as the severe recession that hit the country in 2014.

Founded in 1997 and based in São Paulo, the UTC Group, through its subsidiaries, engages in industrial construction and infrastructure development, oil and gas, and real estate business activities in Brazil and internationally. It offers industrial engineering services, including the construction, erection, management and maintenance of small units and large integrated complexes.

In addition, the TTC Group constructs power plants and dams, subways and railways, ports, canals, airports, highways, bridges and viaducts, urban road systems, buildings, sewages, pipes and transmission lines, as well as paper and pulp and metallurgy industries.

With its bankruptcy filing, which was made at the 2nd Court of Bankruptcy and Judicial Recovery of the Central Civil Courthouse of São Paulo, the UTC Group expects to renegotiate its debts with creditors and restructure its operations to continue business activities – fulfilling its obligations to employees, partners and suppliers.

The bankruptcy process will also allow the UTC Group to comply with the leniency agreement it has signed with prosecutors the Ministry of Transparency, the General Comptroller of the Union (CGU) and the Attorney General’s Office (AGU), after the construction group admitted to bribing government officials to obtain contracts with state-controlled oil company Petroleo Brasileiro SA (Petrobras). This scandal, and the criminal investigation which followed, is often referred to as one of the biggest-ever corruption probes, involving billions in bribes and many politicians.

As a result of Operation Lava Jato, the UTC Group (specifically its engineering and industrial services subsidiary, UTC Engenharia SA) has been prevented from working with Petrobras since 29 December 2014, the state-controlled company having suspended all new contracts. For example, UTC Engenharia suffered a precautionary blockage by Petrobras – one of its main clients – which made it impossible to subscribe to additives to existing contracts.

Petrobras also withheld its endorsement of additions provided for in maintenance contracts for offshore platforms in Macaé, Rio de Janeiro – in which UTC Engenharia achieved proven technical performance in the standards required by the state-owned company. This decision by Petrobras allegedly contradicted not only what was provided for in the contracts, but also approaches that had been taken historically and traditionally.

In an attempt to get its house in order, over the last three years the UTC Group has evolved its corporate governance and implemented an integrity programme. In addition, the leniency agreement allows for the acknowledgment of mistakes and effective collaboration with authorities, and serves as a commitment to reimbursing and repairing damages. The agreement also reaffirms the UTC Group’s responsibility to continuously improve its zero tolerance policy toward corruption and fraud. As a result of these measures, the UTC Group has stated that as far as UTC Engenharia is concerned, it expects the precautionary blockade imposed by Petrobras since 2014 to be revoked.

At present, the UTC Group awaits the decision of the court to move forward with its judicial recovery – a request which will give the construction group a period of 60 days in which to present its restructuring plan. Any plan, in turn, must be endorsed within 180 days by a general meeting of creditors.

At the same time, the UTC Group has reiterated its commitment to continuing to provide the standard of service that has always guided its business activities.

Fraser Tennant