OSX Brasil SA (OSXB3) bank creditors are considering taking possession of two oil vessels used as collateral on loans to Eike Batista’s shipbuilding company, according to six people with direct knowledge of the matter.
Banks are talking to advisers and OSX officials to evaluate whether they should seize the platforms if oil-producing sister company goes into default, which would trigger cross-default clauses on OSX debt, said the people, asking not to be named as discussions are private. OSX borrowed $1.27 billion from 12 banks including Banco Santander SA and DVB Group Merchant Bank (Asia) Ltd. and is still negotiating to avoid filing for bankruptcy protection, one of the people said.
OSX hired Credit Suisse Group AG to help sell the OSX-1 and OSX-2 oil production vessels that guarantee the loans, the people said. Creditors would join that sale process as they seek to avert losses after OGX Petroleo & Gas Participacoes SA missed a $45 million Oct. 1 bond payment that puts Batista on the brink of Latin America’s biggest corporate default.
“For the banks, the best option is to get as much as possible right now, whatever the amount is,” Dany Rappaport, a portfolio manager at Investport, said by phone from Sao Paulo. “The equity investors won’t get to see any of it and that’s why the value of these companies tends to zero.”
OSX is studying “business opportunities” for OSX-1 and OSX-2, the company said in an e-mailed reply to questions. Officials at DVB and Credit Suisse declined to comment, while Santander didn’t respond to e-mails seeking comment.
OGX, the centerpiece of Batista’s commodities group, is considering filing for bankruptcy protection by the end of this month, two people with knowledge of the matter said last week. Batista’s wealth has slumped $30 billion in 18 months after crude deposits he valued at $1 trillion turned out to be duds and he tries to convince bondholders to invest fresh capital.
OSX-1 is in OGX’s offshore Tubarao Azul field in Brazil, while OSX-2 is docked in Malaysia, according to Bloomberg ship-tracking data. Banks have loans secured by the so-called fiduciary assignment of the two vessels, the people said.
Creditors with this type of guarantee wouldn’t lose ownership rights over the assets used as collateral even in the case of a bankruptcy protection, according to Leonardo Morato, chairman of the local affiliate of the Turnaround Management Association of professionals involved with corporate recovery. He declined to comment specifically on OSX’s case.
In a default or cross-default process, creditors would take possession of the asset and sell them, while under a judicial recovery plan they would need to wait 180 days, said Morato, who is also a partner at Veirano Advogados.
Creditors can sell assets regardless of any auction, public sale or any other judicial or extra-judicial measure. Proceeds will be used to pay the total value of the loan and expenses related to the performance of the guarantee before going to the company or other creditors.
DVB led a group of banks and government agencies -- including units of Credit Agricole SA (ACA), Eksportfinans ASA, ING Bank NV, Santander and ABN Amro Bank NV -- in a $420 million loan for the acquisition and adaptation of OSX-1. The loan is booked as 676 million reais on OSX balance sheet at June 30.
ING, Banco Itau BBA and Santander led a $850 million loan in October 2011 syndicated to HSBC Holdings Plc (HSBA), Citigroup Inc., ABN Amro, Banco do Brasil SA (BBAS3) and NIBC Bank NV to build OSX-2. The loan is booked as 1.4 billion reais on OSX’s the company’s balance sheet.
OSX’s $500 million of notes due 2015 have slumped 10 cents in the past month to a record low 73 cents on the dollar today.
The international bond is also guaranteed by a vessel, OSX-3, booked as 1.1 billion reais as of June 30. OSX’s total debt was 5.3 billion reais, according to its second quarter earnings release. Government-owned Caixa Economica Federal also granted two loans of 1.1 billion reais for the shipyard unit, according to the company’s earnings release. The loan has a 450 million-real guarantee from Santander, one of the people said.
OSX also had a 548 million-real debt with Brazil’s development bank BNDES as of June 2013, which was rolled over and matures Oct. 15, according to company filings. The loan has guarantees from Banco Votorantim SA and no vessel as collateral, two people with knowledge said.
“Regarding the 548.1 million reais loan from BNDES, OSX informs that it is negotiating with the bank,” OSX said in an e-mailed reply to questions.
The BNDES declined to comment on the OSX loan in an e-mailed response to questions.
Itau, Banco do Brasil, HSBC, ING, NIBC, ABN Amro, BNDES, Eksportfinans, Citigroup and Votorantim officials declined to comment, while Caixa and Credit Agricole didn’t respond to e-mails seeking comment.
OSX is negotiating to keep unit OSX Construcao Naval SA, which holds the loans, out of bankruptcy proceedings to help garner a better price for the ships, one of the people said. The plan would see OSX Estaleiros SA, the other OSX unit, file for bankruptcy protection. The most likely outcome is that the OSX parent company seeks legal protection, the people said.
Batista, once the poster child for Brazilian entrepreneurialism, raised billions of dollars in equity markets to fund OGX’s drilling program and sister commodities startups before selling bonds to investors including BlackRock Inc. and Pacific Investment Management Co. When the offshore deposits turned out to be commercially unfeasible, OGX lost more than 90 percent of its value and ran out of cash.