Project Finance Lenders in Constellation Oil Services Holding’s $1.67 Billion Restructuring

Cleary Gottlieb acted as legal counsel to the project finance lenders of Brazilian debtor Constellation Oil Services Holding S.A., in connection with the recently announced closing of the restructuring of Constellation’s $1.67 billion in total indebtedness.

The closing took place on December 18, 2019, following nearly two years of extensive negotiations among all stakeholders. Cleary has been actively involved in all aspects of the restructuring. The liquidity provided by the project lenders while the restructuring proceedings were ongoing, together with the efforts of management, enabled the company to continue operating and even secure new contracts during the pendency of the proceedings.

As counsel to all of the company’s project lenders, Cleary helped guide a large and diverse set of financial and investment institutions to work together as a group. The project lenders are secured by different sets of collateral and consist of, among others, commercial banks, ECAs, and institutional investors who purchased their loans in the secondary market.

Constellation filed for bankruptcy in December of 2018, in what has been among Brazil’s largest and most complex bankruptcy filings. Select notable features of the restructuring are described below.

• Implemented through a judicial reorganization (recuperação judicial) under Brazilian Bankruptcy Law, as well as ancillary proceedings in the United States (Chapter 15) and the BVI,
• Constellation’s “pre-arranged” filing was supported by all project lenders as well as the majority of the company’s unsecured creditors, including Banco Bradesco and unsecured bondholders.
• In connection with the restructuring, Cleary negotiated the terms of funding that was made available to the company from the project lenders’ cash collateral, in one of the first instances in the which foreign lenders received “adequate protection” type assurances in connection with their release of cash collateral.
• Cleary also helped structure and facilitate the creditors’ commitment to provide back-stop financing for the sale of designated company assets through a court-supervised auction process that took place during the pendency of the bankruptcy proceedings.
• With the support of its creditors, the company overcame a series of litigation challenges brought in Brazil, the United States (Chapter 15) and the BVI – brought separately by a minority partner in one of the company’s joint venture subsidiaries, and a dissenting bondholder who ultimately dropped out of the ad hoc group of supporting bondholders.
• Over $100 million in total new money was provided at closing by all stakeholders, including through a capital injection from the company’s shareholders and a rights offering subscribed by existing bondholders.

The successful consummation of the restructuring has afforded Constellation the capital and stability needed to continue to bid for new contracts and maintain its rigs and ongoing operations going forward.

Constellation is a market-leading provider of oil and gas drilling and FPSO services in Brazil and other developing markets.