By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

After years of graft probes that have tarnished governments throughout Latin America and left a trail of economic destruction in their wake, Brazilian conglomerate Odebrecht SA announced on Monday it was filing for bankruptcy protection. The company aims to restructure debts of 51 billion reais ($13 billion). But as Bloomberg points out, it has total inter-company loans and other debts estimated to be worth 98.5 billion reais ($25.3 billion), which is enough to make Odebrecht’s bankruptcy filing the largest in Latin American history.

The debt restructuring will affect around 15 of the group’s subsidiaries, but will not include assets such as petrochemical producer Braskem SA, sugar and ethanol subsidiary Atvos Agroindustrial Participacoes SA, construction unit Odebrecht Engenharia e Construcao (OEC), oil company Ocyan, shipmaker Enseada, Odebrecht Transport or homebuilder Incorporadora OR.

The bankruptcy filing comes as financial pressures reached a tipping point for Odebrecht, the Brazilian engineering group the rotten core uncovered by Operation Car Wash, an ongoing criminal investigation that resulted in the imprisonment of senior political and business figures from across Latin America, including Brazil’s former richest man, Eike Batista. The corruption scandal has done extensive damage to Brazil’s state-owned oil behemoth Petrobras, turning its bonds from investment grade into junk virtually overnight, and has set back Odebrecht billions of dollars in fines— money it has struggled to pay without putting its own solvency in jeopardy.

By late last week, perpetual bonds guaranteed by Odebrecht’s construction unit were trading at around 6 cents on the dollar. The group’s ethanol unit Atvos SA was the first to file for bankruptcy protection, in early June. The conglomerate had hoped to raise cash through the sale of its controlling stake in its most profitable subsidiary, petrol company Braskem SA, to Lyondell Basell Industries NV, but the deal fell through after Braskem failed to file its 2017 annual report with the SEC on time.

After a sharp decline in Braskem’s stock price last week, the shares, which had served as guarantees for the R$12.7 billion of debt ($3.27 billion) Odebrecht owed to a consortium of banks, no longer fully covered the debt for which they were pledged as collateral. As a result, Odebrecht was unable to meet its commitments to the Brazilian lenders Itaú, Caixa Economica Federal, Bradesco, the National Bank for Economic and Social Development (BNDES), Banco do Brasil and Santander Brasil.

Odebrecht’s biggest creditors are the public-owned banks BNDES, Banco do Brasil and Caixa Economica Federal. Brazil’s biggest bank, Banco do Brasil, alone is owed R$9 billion ($2.25 billion).

Banco do Brasil’s president, Rubem Novaes, warned earlier this month that any petition by Odebrecht for bankruptcy protection is of cause for concern to financial institutions like his own. “There is a concern, yes, but luckily we are well provisioned,” he said after a meeting with Economy Minister Paulo Guedes and the presidents of BNDES and Caixa Economica Federal.

The private banks Bradesco, Santander and Itaú are a little less exposed to the fallout since a large chunk of the debt they are owed by Odebrecht is guaranteed by shares in Braskem. A much smaller part of the debt owed to BNDES and BB is guaranteed in this way. As for Caixa, it has much flimsier guarantees on the 6 billion reias ($1.54 billion) it is owed, which is probably why it was the first lender to force Odebrecht’s hand by executing the holding guarantees on soccer stadium Arena Corinthians, triggering a cross default.

Another group of creditors that will be watching developments closely are overseas bondholders. The bonds, which total some 12 billion reias ($3.1 billion), were issued by a company called OSL, which is linked to Obedrecht’s holding company. However, they are guaranteed by the group’s OEC construction arm, which means they will be subject to a separate negotiation.

But in all likelihood the biggest victims of Odebrecht’s bankruptcy will be its legions of workers and Latin American suppliers, many of whom have already lost their jobs or been put out of business by the domino-like succession of plant closures and project shutdowns or suspensions that followed in the wake of the largest foreign bribery case in history. Now, many more could be about to suffer the same fate. By Don Quijones.

Former Pemex CEO and former election-campaign advisor to former President of Mexico Enrique Peña Nieto is on the hot seat for his involvement in the Odebrecht scandal. His lawyer suggests if the price is too high, he may be willing to take Nieto down with him. Read…  “Largest Foreign Bribery Case in History” Claims New Scalp: Former Pemex CEO

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