Creditors of Eike Batista’s oil producer, including Pacific Investment Management Co., agreed to put up fresh capital to keep the Brazilian company running in a deal that will strip control from the former billionaire.
The arrangement with bondholders entails the issuance of $215 million of debentures by Oleo & Gas Participacoes SA (OGXP3) subsidiary OGX in two tranches, with the first $125 million expected in mid-February, the oil company said in a statement. Creditors include Pimco, the world’s biggest bond fund, while Deutsche Bank AG will act as an intermediary in the transaction, according to two people with knowledge of the deal.
The accord, which is subject to regulatory approval, would end more than six weeks of talks to make final a preliminary debt-for-equity swap announced on Dec. 24 that will give creditors control of the explorer founded by Batista. The debtor-in-possession financing will help cover costs at the company’s only producing oil field as it looks to emerge from bankruptcy protection after triggering Latin America’s largest corporate default last year.
“This agreement is an important vote of confidence in OGX’s potential and an important step in our restructuring,” OGP Chief Executive Officer Paulo Narcelio said in the Feb. 7 statement. “If approved, it will provide the company with a new start.”
Negotiations were delayed after BlackRock Inc. and GSO, Blackstone Group LP (BX)’s credit unit, pulled out of the deal.
The financing forms part of a restructuring plan that the company needs to deliver to a court in Rio de Janeiro. It has until Feb. 17 to present the plan, Caetano Berenguer, a partner at the law firm Sergio Bermudes, which represents the company, said in a telephone interview.
“We are very satisfied with having reached this important framework,” the creditors’ advisers said in the statement, without identifying them. “We are anxious to work with the company, its controlling shareholder and all other stakeholders to try to complete the company’s reorganization as quickly as possible.”
Following regulatory approval, the debentures will be converted into ordinary shares equal to 65 percent of the company, according to the statement. Other OGX creditors will hold 25 percent of shares, and current shareholders another 10 percent.
The judge evaluating the case probably will approve the plan if it means preventing the company from running out of cash, said Renee Dailey, a partner at Bracewell & Giuliani LLP in Hartford, Connecticut.
“There’s a preference for restructuring, meaning there is a preference in keeping businesses running and people working,” she said in a telephone interview on Feb. 6. “If this does that, that’s a compelling reason for the court to approve it.”
The debtor-in-possession financing is aimed at keeping crude flowing at Tubarao Martelo, the company’s only producing oil asset, after it agreed in October to sell control of natural-gas fields to private-equity fund Cambuhy Investimentos Ltda and Germany’s E.ON SE. (ONG) Martelo produced about $32 million of oil last month after starting output on Dec. 6.
The company’s first offshore project, Tubarao Azul, has been shut since mid-2013 because it encountered compartmentalized geology that hindered the flow of oil and had mechanical problems at production pumps. OGP said Feb. 3 that it planned to conduct tests at the field to see if it could resume output. Last month, Brazil’s oil regulator said it will take back six of OGP’s crude discoveries after the company delayed evaluation plans.
OGP also has a 40 percent stake in the BS-4 offshore concession that holds the Atlanta and Oliva discoveries. The company began making payments to partners QGEP Participacoes SA (QGEP3) and Barra Energia Petroleo e Gas in January for its share of investments in the block.
The explorer’s shares surged in 2009 and 2010 after reporting discoveries at more than 80 percent of wells drilled, allowing Batista to tap debt markets to finance operations. Shares of OGP have slumped 98 percent since the company started production in January 2012.
The stock closed unchanged at 31 centavos in Sao Paulo on Feb. 7. OGP, whose market value peaked at 75.2 billion reais ($31.6 billion) in October 2010 after initial success exploring for oil, has slid to 1 billion reais. Its bonds due 2018 fell to 3.53 cents on the dollar Feb. 7 from 4.125 cents on Feb. 6.
To contact the reporters on this story: David Biller in Rio de Janeiro at email@example.com; Cristiane Lucchesi in Sao Paulo at firstname.lastname@example.org; Juan Pablo Spinetto in Rio de Janeiro at email@example.com
To contact the editor responsible for this story: Andre Soliani at firstname.lastname@example.org