Creditors Want 90 Percent of Raizen for 45 Percent of the Debt

Creditors asked for 90 percent of a company in exchange for forgiving 45 percent of what it owed them.

That was the number floating through the Raízen restructuring talks last spring: banks and bondholders told the Brazilian sugar and ethanol producer they'd be willing to retire roughly R$29 billion of debt - about 45 percent of the total - but only if they walked away owning the vast majority of the business.

The official label for this is a debt restructuring. The economic reality is something closer to a creditor takeover.

Raízen is Brazil's largest sugar and ethanol producer, and until recently a fairly normal joint venture: Shell and the Brazilian conglomerate Cosan each own 44 percent, and the rest floats publicly. The company went public in 2021, raising R$6.9 billion, and for a while it looked like a clean green-energy story. Then the balance sheet caught up with it.

By early 2026 the numbers were bad enough that S&P downgraded Raízen to "CCC+" and Fitch to "CCC" - both one notch above selective default. The company reported a R$15.6 billion loss in the third quarter of its fiscal year. Leverage was around 5.3 times adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization - a rough proxy for cash earnings). That means for every dollar of operating cash the business generates, it owes more than five to its creditors.

In March, Raízen filed Brazil's largest out-of-court restructuring, covering roughly R$65 billion (about $12.6 billion at the time) in unsecured debt and, when you count secured obligations, more than R$98 billion in total. The company also filed Chapter 15 in a New York court - a recognition proceeding that lets a foreign restructuring get some enforceability in the US, where many of the offshore bondholders sit. A New York judge granted final Chapter 15 relief in April.

The basic mechanics of the plan are familiar. The company proposed converting 45 percent of its debt into equity. The remaining 55 percent would get its maturity extended by 13 years. Shell committed to injecting R$3.5 billion in fresh capital. There was even talk of additional money from Aguassanta, a Brazilian investment firm.

What's not familiar is the ownership math. Under the plan, the creditors taking the 45 percent debt-for-equity swap would get as much as 90 percent of the restructured company. Shell and Cosan - the founders, the operators, the names on the door - would be diluted to single-digit stakes. In some scenarios they'd each end up with roughly 4 to 9 percent.

Here's a tiny dialogue to make the incentives clear:

Shell and Cosan: We built this company. We know the business. Let us keep control and we'll pay you down over time.

Creditors: Time is the problem. You're leveraged five times, your bonds are trading at distressed levels, and we don't trust the recovery path. Give us the equity, give us the board, and we'll manage the deleveraging ourselves.

Shell: Fine, we'll put in $700 million. How much do we get?

Creditors: A rounding error.

That's a dramatization, but the math checks out. Shell's R$3.5 billion injection is real capital, but relative to a R$98 billion balance sheet it's a small down payment - not a controlling one. The creditors who absorb the debt conversion are putting in nothing new, but they're getting the bulk of the ownership because they're the ones who already hold the most skin in the water.

The odd thing is not that creditors are angry. The odd thing is how far the power shift went. In a typical debt restructuring, lenders accept a haircut and a longer maturity and the original shareholders get diluted but stay in charge. Here, the lenders are demanding the whole thing.

Why did this happen? Two structural reasons, one financial and one legal.

Financially, Raízen's bonds got hammered. By early 2026 the dollar bonds had dropped 8 to 12 points across the curve in a single week at one point, and the broader market was pricing a recovery rate of maybe 30 cents on the dollar or less. S&P assigned a recovery rating of "3" to the senior unsecured notes - which translates to an expected recovery of roughly 20 to 40 percent. If you're a bondholder watching that, equity is actually the rational play. You'd rather own a piece of the going concern than wait for a liquidation that might pay you 15 percent.

Legally, the framework was set up to make this credible. Brazil's out-of-court "recuperação extrajudicial" process has a hard deadline - Raízen had until June 6, later extended to June 8 - to build majority support. If the plan fails, the company slides into a full court process, which is slower, more expensive, and gives holdouts more leverage. The Chapter 15 filing in New York added a second layer: once the Brazilian plan is approved, the US recognition means offshore bondholders can't easily ignore it and run to a New York court for better treatment. That's the stick behind the negotiation.

By June 3, Raízen had reportedly secured informal majority support from creditors for a final restructuring proposal. The offshore bondholders, who had been the holdouts, were still skeptical, but the majority-threshold mechanics of the Brazilian process mean that a majority can bind the minority - as long as the court ratifies it.

S&P downgraded Raízen to "SD" - Selective Default - on the restructuring filing itself. That designation means the company has stopped paying at least some creditors while continuing to pay others, which is exactly what happens when you file for a standstill and start picking which obligations to restructure first. It's not a moral judgment. It's a plumbing flag: the capital stack is no longer functioning as designed, and the pecking order is being rewritten.

Fitch had already downgraded the company to CCC, projecting leverage of 5.0 to 5.4 times over the next two years without the restructuring. The ratings agencies were pricing a very low recovery. That's the environment in which creditors say "we'd rather run the place than wait for it."

What's still unclear - and this is a real gap, not a stylistic hedge - is exactly what the final approved terms look like. As of the June 3–4 reporting, creditors were evaluating the final plan, and the June 8 deadline had just passed. Whether the court ratifies the plan, whether the 90 percent creditor equity stake is the final number, and whether Shell and Cosan end up as minority participants or negotiate a different dilution - all of that depends on the next few court filings. I don't have those yet.

The structural judgment, though, doesn't depend on the exact final percentage. The machine is clear.

This is what happens when a joint venture between two major shareholders becomes too expensive for either of them to save alone. Shell didn't want to write another multi-billion-dollar check. Cosan was already under pressure and reportedly open to selling its remaining Raízen stake entirely. The creditors stepped into the gap not as rescuers but as acquirers: they used their collective voting power to convert their distressed debt into majority ownership, and the original owners accepted dilution because the alternative was a deeper bankruptcy.

The interesting question for the next chapter isn't whether Raízen's ethanol and sugar operations will keep running. They will. It's who runs them, who sets the strategy, and whether a company whose board is controlled by its former bondholders looks like a green energy producer or a debt recovery vehicle in a costume.

In old finance terms, this is a debtor-in-possession financing where the creditors didn't wait for the financing to show up - they just took the keys.