$82-Billion Debt Restructuring OKd by Brazil, Citibank

Brazil and Citibank announced Wednesday that a historic $82-billion debt restructuring package has been completed that will allow the nation to start drawing funds by the middle of the month.

The package should enable Brazil to bring back-interest payments to commercial banks up to date and, in turn, boost U.S. commercial banks’ fourth-quarter earnings.

The announcement that the package was completed was made by Mailson Nobrega, Brazil’s minister of finance, and William Rhodes, chairman of the 16-member bank advisory committee and a Citicorp executive.

The loan agreement, reached in June and signed in September, will give Brazil $5.2 billion in new loans. It also reschedules old loans and covers various short-term trade loans.

Will Breathe Easier

The agreement will allow Brazil to make the first drawdown, totaling $4 billion, within the next two weeks.

It also will enable Brazil to bring back-payments up to date for the first time since February, 1987, when it declared a moratorium on interest payments to banks.

From that time the banks had put their Brazilian loans on a non-accrual status, meaning they would not count interest as income until it actually came in.

The interest payments should allow U.S. commercial banks to reap substantially higher profits in the fourth quarter, banking analysts say. The payments plus hefty fees from leveraged buyouts will give banks breathing room, they add.

“The fourth quarter is going to be a terrific quarter, partly because of Brazil and partly because there are zillions of leveraged buyout deals in the marketplace,” said Drexel Burnham Lambert analyst Lawrence Cohn. “If banks have problems, this is the time to clean them out.”

Brazil is the developing world’s largest debtor, with $120.3 billion of external debt.

Citibank said the syndication, which began in late June, was the fastest of any major new money-and-restructuring package since the debt crisis began in August, 1982. Loan agreements usually take a long time to complete because many banks worldwide must sign them.

Separately, in Washington, the World Bank approved late Tuesday the disbursement of a $100-million slice of a loan to reform Brazil’s agricultural sector, officials said. Commercial banks had specified that the farm loan must be drawn down before they would disburse the first $4 billion of their own loan.