Eike Batista’s decision to postpone payments on local bonds issued by his Brazilian oil producer OGX Petroleo e Gas Participacoes SA means the company doesn’t plan to pay an Oct. 1 coupon on dollar debt, according to two people with direct knowledge of the plan.
The OGX Austria unit, which holds all of the 2.1 billion reais ($932 million) in local notes, agreed to postpone a Sept. 25 payment for an undisclosed amount until March 25, Rio de Janeiro-based OGX said in a regulatory filing yesterday. Non-payment of the securities, sold to the offshore unit as a way of avoiding taxes on international payments, means OGX won’t pay a $44.5 million dollar debt coupon, the people said, asking not to be named as the plan hasn’t been made public.
The decision not to pay the coupon on $1.06 billion of dollar notes due 2022 moves Batista’s flagship company closer to Latin America’s largest corporate default on record. The former billionaire is seeking to renegotiate debt and keep OGX afloat after some of the offshore deposits he had valued at $1 trillion turned out to be duds, triggering a selloff that wiped out about $30 billion of his personal fortune.
The agreement with OGX Austria avoids a local bond default, OGX said in the filing. The oil producer declined to comment on the international debt payment plans.
Planner Corretora de Valores SA, the fiduciary agent of local securities linked to the international bonds, said it was informed that local bondholders approved a new flow of payments for the 2.1 billion reais in securities and decided not to ask for a early redemption of the debt.
As of June 30, OGX had 722 million reais in cash and equivalents and 8.7 billion reais in total debt, including $2.6 billion of notes due 2018. A default of the $3.6 billion international bonds would be the region’s biggest corporate default, according to data compiled by Moody’s Investors Service.
OGX’s C ratings reflect imminent default given its tight liquidity position and the need for capital expenditures to increase production and cash flow, Fitch Ratings said after downgrading OGX from CCC. The company also has about 500 million reais in debt with banks, one of the people said.
OGX is in talks with bondholders to convert debt to equity and get at least $250 million in fresh capital, two people with direct knowledge of the matter have said. The talks have been complicated because OGX is losing money and needs money to test production at its most promising field, Tubarao Martelo.
Creditors of Batista’s shipbuilder OSX Brasil SA (OSXB3) hired law firm Bingham McCutchen LLP in preparation for the possible restructuring of $500 million in bonds, two people briefed on the arrangements said Sept. 9. That replicates a decision by OGX bondholders, which last month hired Rothschild to advise on a restructuring, a person with knowledge of the agreement said.
The oil producer’s $2.56 billion of debt due 2018 has tumbled 3.3 cents to 17 cents on the dollar since Sept. 20, when OGX announced the departure of Chief Financial Officer Roberto Monteiro. Four days later, the company hired Lazard Ltd. (LAZ) to work alongside advisers including Blackstone Group LP (BX) in the talks.