OSX Brasil SA (OSXB3), the shipbuilder controlled by former billionaire Eike Batista, is planning to file for bankruptcy protection by early next week, according to two people familiar with the matter.
The decision to file has already been made, the people said, asking not to be identified because it hasn’t been made public. While a judicial recovery petition, as the proceedings are known in Brazil, may be lodged as soon as this week, it’s more likely to take place next week, one of the people said.
A filing would put $500 million of dollar bonds into default after Batista’s oil company and OSX’s biggest client, OGX Petroleo & Gas Participacoes SA (OGXP3), sought protection on Oct. 30 in Latin America’s largest corporate debt debacle. OSX reported total debt of 5.3 billion reais ($2.3 billion) at the end of the second quarter.
“If the company decides to go for that, it’s the best decision for shareholders and for the business to continue forward,” Rogerio Freitas, a partner at hedge fund Teorica Investimentos, said by phone from Rio de Janeiro. “There’s short-term fear, but the business is much more sustainable in the medium term. We like OSX.”
In an Oct. 31 statement, the shipbuilder said it was ready to seek bankruptcy protection if management decided that was the best way to protect its interests. OSX continues to study the measure, a press department official said by phone yesterday, asking not to be named in line with company policy.
OSX and OGX were the only two of Batista’s six publicly listed companies that sold bonds in international markets. Batista either relinquished control of, or agreed to sell key assets and stakes in, the four other startups. OSX was building three vessels for OGX before the explorer’s tests uncovered an absence of oil in a series of non-commercial wells.
OSX, the last of Batista’s companies to undertake an initial public offering, was created to profit from Brazil’s local content rules, which limit the use of imported equipment and services by the oil and gas industry. The company’s shares never recovered the March 2010 IPO price even as Batista promised to create “the Embraer of the seas,” referring to the world’s largest regional-jet maker.
Until Sept. 2012 the company was saying it had firm orders for vessels worth $7 billion. Since then, OSX has been shrinking projects, firing staff and putting units on sale after contracts were canceled and losses mounted. In March, OSX shelved plans to sell a second international debt security amid a rout in its securities, according to a memo from underwriters obtained by Bloomberg News at the time.
OSX extended the maturity for a year on a 461 million-real loan from state-run Caixa Economica Federal, which is guaranteed by Banco Santander SA, according to a regulatory filing today. Since Aug. 18 state development bank BNDES has been pushing out maturities on a loan for 518 million reais.
OSX’s dollar bonds due 2015, which are backed by a contract to lease a platform to OGX, have fallen 24 cents this year to 80 cents on the dollar yesterday. The notes rose to 83.6 cents at 9:48 a.m. in Sao Paulo today. Holders hired AlixPartners LLP to advise on a possible restructuring, according to two people with knowledge of the matter.
AlixPartners, the New York-based firm that advised General Motors Co. on its restructuring when the automotive giant filed for bankruptcy protection in 2009, will work alongside the creditors’ legal adviser Bingham McCutchen LLP, said the people, asking not to be identified as the contract is private.
Tim Yost, a spokesman for AlixPartners, declined to comment. OSX’s press office said it wouldn’t comment on a contract made by its bondholders.
Timothy DeSieno, a partner at Boston-based Bingham, didn’t reply to an e-mail and voice-mail seeking comment.