Buenos Aires Embotelladora S.A. (BAESA): A South American Restructuring

By: Gustavo A. Herrero and Stuart C. Gilson

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Synopsis: In 1998, BAESA, PepsiCo's largest bottler and distributor outside North America, experienced severe financial difficulty and had to restructure its debt and business operations to avoid bankruptcy or liquidation. Based in Argentina, with operations throughout South America, the company had for years been a spectacular success story and media darling, until it undertook an ill-fated expansion in Brazil. The company's debt was owed to banks and financial institutions in South America, Asia, Europe, and the United States. In addition, the company had $60 million of publicly traded bonds, much of them held by U.S. investors. The restructuring was the largest and most complicated undertaking of its kind ever taken in South America. In addition to negotiating with its bankers and making a public exchange offer for its bonds, the company made a massive common stock rights offering to its shareholders, giving them the opportunity to purchase new stock in the company. It also considered filing a "prepackaged" Chapter 11 bankruptcy in the United States to pressure U.S. bondholders to go along with the plan. The negotiations were greatly complicated by differences in the bankruptcy laws of Argentina, Brazil, and the United States.