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Brazil Phone Co. Bankrupt With Record $19b Debt

Brazil Phone Co. Bankrupt With Record $19b DebtBrazil Phone Co. Bankrupt With Record $19b Debt

Oi SA filed for bankruptcy protection on 65 billion reais ($19 billion) in debt—a Brazilian record—after failing to reach an agreement with creditors, the last straw following a series of mergers and leadership changes that failed to help the phone company get on solid financial footing.

Brazil’s fourth-biggest wireless company sought protection from creditors so it could keep serving customers, the company said in a filing Monday. Talks with creditors had stalled last week after some board members disagreed with a plan by bondholders to swap debt for equity, giving them 95% of the company and leaving current shareholders with a 5% stake, Bloomberg reported.

The filing is likely to have major repercussions in Brazil, since state-owned banks Banco Nacional de Desenvolvimento Economico e Social, Caixa Economica Federal and Banco do Brasil SA are among Oi’s top creditors, along with private banks such as Itau Unibanco Holding SA. Oi’s move is also set to trigger payments on a total of $14 billion in derivatives contracts designed to protect debt investors against a default, according to data compiled by Bloomberg.

Oi has about $1 billion in net outstanding credit default swaps, the data show. Typically that is the maximum that could be paid out, after accounting for offsetting trades.

Oi’s board decided to move ahead with the filing after determining that the company was unlikely to get approval from shareholders and debt holders for a voluntary exchange offer in time to make the next debt payment, according to two people familiar with the matter.

The board of Brazil’s telecommunications regulator, known as Anatel, met Monday to analyze the impact of Oi’s bankruptcy filing, President Joao Rezende said in a text message. The agency controls licenses to operate telecommunications networks. Anatel is unlikely to intervene if Oi can keep providing good service to customers, the people familiar with the matter said, asking not to be identified discussing private information.

The 65 billion-real figure includes Oi’s 50 billion reais in bonds and bank loans, plus amounts owed to suppliers and other accounts payable.

Oi was under pressure to seek protection because it has a €231 million-denominated ($261 million) bond maturing in almost a month. The filing comes 10 days after Bayard Gontijo resigned as the company’s CEO after disagreeing with some board members on how to proceed on negotiations with debt holders.

Marco Schroeder was named to replace Gontijo earlier this month, becoming Oi’s sixth CEO in five years.

 

Financialtribune.com