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Bingo! | Delta Goes Down


Source: Delta defines bankruptcy recovery plan — Portal ClippingMP.

In the annals of contemporary Brazilian bribery scandals, probably none are more painful than the saga of the public works contractor Delta and its ties to organized crime boss Carlinhos Cachoeira — Charlie Waterfall, whose principal business is the murky world of smuggling, numbers racketeering, and “nickel-hunter” gambling machines.

One of Brazil’s largest contractors, Delta had been a star player in the PAC — the federal growth acceleration program — and was afforded the honor of joining the consortium to rebuild the Maracanã Stadium in Rio de Janeiro.

Now, it would be difficult for it to obtain a bicycle-powered newspaper route.

Delta has since voluntarily withdrawn from Maracanã and most other projects.

A congressional investigation is underway — wrapping up early, actually, after company officials and other parties took the local equivalent of the Fifth — but federal police say they have ample evidence of wrongdoing — including the involvement of journalists in character assassinations of Mr. Waterfall’s enemies..

Delta executives appeared on court-ordered wiretaps discussing how to cheat federal contract bidding procedures and infiltrate regulatory agencies, among other things.

And so the rise and fall of Delta turns out to be a textbook case of moral hazard.

Delta intends to pay its non-financial creditors with equipment. Its plan is to reduce its inventory of idle equipment by reducing the number of projects contracted for since January 2012 by  50%. Banks and financial institutions will receive payment starting in June 2014,  payable in 72 monthly installments and corrected by CDI+1%, according to a recovery plan filed yesterday in a Rio de Janeiro court. The creditors assembly is scheduled for December 7. Bradesco is the company’s largest creditor.

Delta will pay non-financial creditors with unused equipment, in order to reduce the inventory of equipment built up to taken on public works that it is now abandoning — the company has reduced its works in progress by nearly half this year.  … Creditors may also opt to receive early payment, so long as they receive them from current receivables. These represent debt paper owed to Delta for projects completed but not yet paid for.

In all, Delta owes  R$ 273 million, of which R$ 170 million is owed to banks. Bradesco is owed more than  50% of that amount.

Early in 2012, Delta had estimated it would book contracts worth R$ 4 billion this year. Now, after being declared financially unreliable by the federal ombudsman, the CGU, it is not allowed to compete in new project bidding. With that, its portfolio of projects under way has been reduced by half, to R$ 2 billion.

A source close to the company says most of its assets are cars and trucks from the company fleet, as well as construction equipment.

Management changes are also underway …

Janoni is COO of Delta and has a historically close relationship with owner Fernando Cavendish. This will be the second change of command in less than a year.

In April, Cavendish stepped down as chairman of the board. At the time, Delta was under investigation for its ties with Charlie Waterfall.

Continuing ..

If equipment is accepted and the asset selected is worth more than Delta’s debt by a factor of 10%, the creditor may make up for the difference with a cash payment on the spot. If the difference is less than 10%, the debt will be considered paid. …

A source close to the company said this manner of payment facilitates the raising of cash. Otherwise, the company would have to hold an auction and only then negotiate the payment. Further, the company avoids the cost of hiring an auction house and hastens the final settlement …

Under the plan, the non-financial creditors will not have their debts corrected for exchange rates or interest. These have been classified according to the total amount of their claim. With that, the form and deadline of financial payment is different from class to class. Group A encompasses creditors owed more than a million. These firtms can opt to receive repayment at a 20% dfiscount starting in January 2013 and extending over 24 equal and consecutive monthly payments. A second option involves no discount, but repayment occurs over 36 months of equal, consecutive payments.

Group B includes those owed between R$ 100,000 and R$ 1 million. FOr these creditors, repayment also begins in January 2013, with the 20% discount, but will be paid in 18 installments. Without the discount, the debt will be paid in 24 installments..

For Group C, companies owed R$ 100,000 or less, and creditors opting out of the discount will be repaid in 18 months.

All nonfinancial creditors have 30 days to communicate their options after the publication of the decree, which is expected on  December 7.

If they miss the deadline, Delta will assume a choice for the longer payment period, with no discount..

For financial institutions, meanwhile, the fixed income instruments offered as an alternative will not have their liquidity guaranteed. Receivables will be efined as income from projects already audited and accounted for but not yet paid.

After the recordings of Delta’s dealings with racketeer Charlie Waterfall emerged and the CGU ruled the transactions illicit, a number of states and municipalities suspended payment, even though work was actually completed, says a source close to the company.

Delta is taking these debtors to court. “If Delta received payment for all the work performed to date, it would be able to pay three times the debt outstanding,” the source says.

The recovery plan provides for future receivables of  R$ 53 million, or about  30% of the amount owed to banks. An escrow account will be created for these receivables.