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CASE PROFILE: Nova Austral files for bankruptcy protection in Chile after bondholder agreement falls apart

by Mariana Santibanez, Santiago del Carril, Alvaro Ledgard and Arthur Almeida 

Chile-based and Norway-listed Nova Austral filed a voluntary Concursal de Reorganizacion proceeding in Chile on 20 June, after it failed to finalize an out-of-court restructuring agreement. 

The salmon farmer had reached a series of agreements with bondholders in recent years, to help navigate problems including effects of COVID-19 and sanctions from environmental regulators. In April, it announced an agreement in principle with a bondholder group to overhaul the capital structure, but failed to get all necessary parties on board to reach a final agreement. 

The case is C-110-2023, in the Civil Court of Porvenir, Chile. 


Debtwire Restructuring Database: Nova Austral (2023) 

The company  

Nova Austral is a salmon farmer and processor founded in 1999 in Porvenir, Chile. It operates in Magallanes and Antarctic regions, in the southern part of the country. 

The company’s main line of business includes the production and processing of seafood products. Through its subsidiaries, Nova Austral also provides aquaculture services which include the breeding, rearing, and harvesting of sea-based creatures such as fish or crustaceans. The company is also a buyer, seller, importer and exporter of sea creatures suitable for human consumption.  

Nova Austral has its entire production cycle in the Magallanes region. Its farming centers are distributed in various parts of the region, and its hatchery facility, processing plant and headquarters are located in Porvenir. Additionally, the company has administrative offices in Punta Arenas.  

Private Equity firm Altor Equity Partners’ Altor Fund III owns 100% of Nova Austral, after Bain Capital sold Altor its 49% stake in October 2022. The two had purchased the firm in 2014. Nova Austral SA controls four subsidiaries: Comercial Austral SA, Pesquera Cabo Pilar SA, Piscicultura Tierra del Fuego SA and Salmones Porvenir SPA, though management sees the group as one single consolidated business with the name of “Nova Austral.”  

According to company filings, more than 3,000 workers depend directly or indirectly on Nova Austral, which positions it as a key economic player in the Magallanes region. Nova Austral is the main employer in Porvenir.  

Nova Austral’s corporate governance is made up of an administrative body that meets monthly to evaluate the company’s most relevant issues. The board of directors is composed of Yngve Myhre, Chairman; Halvor Meyer Horten, Director; and Tom Christian Jovik, Director; and Anton Felmer, Director. 

The management team includes Nicolas Larco, CEO and CFO, and Javier Herrera, COO. 

It sold a USD 300m 8.25% senior secured 2021 bond in June 2017.

The debt  

Nova Austral's liabilities totaled USD 584m at the end of 1Q23, up from USD 511m a year earlier, driven by interest accrued. Cash and cash-equivalents totaled USD 2m at the end of 1Q23, affected by the need to pay suppliers, according to the company’s 1Q23 earnings presentation.
Additionally, Nova Austral's indebtedness was aggravated by a decline in earnings, which was affected by increasing regulatory pressure, that resulted in the loss of USD 8.7m in subsidies from the Navarino law, with production declining to one-third of what it was in previous years, according to the company's petition.
Recent judicial injunctions also left without effect a series of resolutions approving the transfer of Nova Austral’s farming sites to other regions, which seriously affected production.
According to the petition filed on 20 June, the debt covered by the reorganization process includes the following debt:

  • USD 484.6m to financial creditors 

  • USD 58.8m to national suppliers 

  • USD 0.5m to foreign suppliers 

  • USD 8,847 to custom agency suppliers 

  • USD 67,953 in creditor fees 

  • USD 15.7m to related companies 

Nova Austral’s three largest creditors are Nordic Trustee, DNB Bank and Comercializadora Nutreco Chile, which together hold a total USD 508m of debt, according to the creditor list submitted by Nova Austral.
Nordic Trustee is the trustee for Nova Austral’s international bonds. The original USD 300m 8.25% 2021 bond was extended to 2026 and divided in to two tranches during a 2020 out-of-court restructuring. Nordic represents USD 415.5m of the debt, which includes the two bond tranches and a bond trustee fee.  

  • USD 265.8m 10% senior secured "first lien" bond due 2026 (often referred to as the 8.25% 2017/2021 bond) in principal and USD 13.6m in interest. 

  • USD 129m 12% senior secured “second lien” convertible bond due 2026 (often referred to as the 2020/2026 bond) in principal and USD 6.7m in interest. 

  • USD 71.6m in fees by the bond trustee. 

DNB Bank holds USD 69.1m of the company’s debt via a USD 65m credit line and USD 4.1m in interest payments.
Comercializadora Nutreco Chile holds USD 23.9m of the company’s debt, with USD 23m representing debt owed to salmon food suppliers.  

The descent  

In June 2019, an investigation by El Mostrador found that Nova Austral had tampered with fish mortality numbers at its farms in order to avoid penalties. The Chilean news outlet obtained access to emails of high-ranking managers and internal documents.  

The scheme was found to have started around August 2016, when mortality numbers started to rise above what the regulator established. Nova Austral produced salmon without the use of antibiotics, which together with low levels of mortality, placed the company in compliance with the standards of the Aquaculture Stewardship Council, allowing it to sell its products at a higher price than competition in the US and European markets.   

Nova Austral initially denied the tampering reports, saying it met all the customer requirements for antibiotic free salmon. Its board announced the opening of an independent internal investigation to evaluate the merits, and Nova Austral later admitted it had indeed submitted incorrect information to the fishing regulator, Sernapesca, about salmon mortality numbers.   

Biological challenges related to poor smolt batches amplified the problems. In 1Q19, revenues dropped 23.5% YoY to USD 23.3m, while EBITDA before fair value adjustments imploded, falling 73% YoY to USD 1.2m. Company officials acknowledged on the 2Q19 earnings call that Sernapesca and Chile’s Superintendency of the Environment (SMA) had filed public complaints against the company. 

Nova Austral’s 3Q19 EBITDA dropped 71%, with the poor performance continuing into 4Q19. Altor and Bain Capital reiterated their commitment to support the company, and that Nova Austral continued to operate as usual with improved biological KPIs and sufficient liquidity from operations.   

In 1Q20, Nova Austral said it would need to seek new sources of liquidity if a new criminal case involving former managers was to be prolonged. As a precautionary measure in the case, a Chilean court withheld four months of government payments owed to the Chilean salmon farmer under the Navarino Law.  

Nicolas Larco became CEO in April 2020. In June, management indicated that stretched liquidity would require it to engage bondholders as the 2021 bond maturity approached. 

Discussions were successful, as bondholders approved a proposal to amend the 2021 bonds and extend the maturity in August 2020. The USD 300m bond was divided into a USD 200m 10% first-lien tranche and a USD 100m 12% second-lien tranche, both due November 2026. The sponsors also agreed to provide a guarantee for an enlarged RCF. See the Debtwire Restructuring Database Nova Austral (2020)

In August 2021, Nova Austral obtained bondholder consent to increase the amount of debt it could draw under its revolving credit facility (RCF). Bondholders also approved amendments including call options for the 2021 bonds.  

Nova Austral was fined CLP 1.225bn (USD 1.6m) by the SMA in September 2021, for several irregularities at one of its production units.  

The company again started discussions with bondholders and other stakeholders in November 2021 to discuss a broader solution to address its temporary working capital challenges. Bondholders agreed to defer an interest payment on the second-lien 2026 bonds. 

Nova Austral’s shareholders agreed to a capital increase of up to USD 20m, and a first disbursement of USD 15m was made in December 2021. This permitted the company to make a May 2022 bond interest payment of USD 13m in-kind.   

In July 2022, the SMA revoked environmental licenses for three feeding sites. In October, Bain Capital sold its stake in Nova Austral to Altor Equity Partners. 

In October 2022, bondholders approved amendments to the terms of the bonds, as shareholders agreed to provide a USD 8.5m equity contribution. Nova Austral then began discussing a “comprehensive financial restructuring” with bondholders and secured lenders. The holders approved a coupon payment extension from November to March.  

During that period, the company was also granted payment waivers for its super senior revolving credit facility and the loan facility to its subsidiary Piscicultura Tierra Del Fuego. However, secured lenders were not willing to extend the waivers, and as such, the company and Piscicultura entered into default. This in turn triggered a cross default on the bonds.   

In April, bondholders approved an agreement in principle for a restructuring, which would include a USD 20m term loan, the issuing of a convertible bond, and the exchange of debt for equity. However, on 21 June Nova Austral requested the initiation of judicial reorganization proceedings in Chile, citing a lack of consensual resolution for the restructuring of the company.

The advisors  

Nova Austral has retained Carey Abogados as its legal counsel.