OGX Petroleo & Gas Participacoes SA, the oil company controlled by former billionaire Eike Batista, is considering filing for bankruptcy protection within a month after missing a bond payment, said two people with direct knowledge of the matter.
The filing would be done in Rio de Janeiro where OGX is based, said the people, asking not to be identified as discussions are private. While Batista is negotiating with creditors to avoid the same process for shipbuilder OSX Brasil SA, the most likely outcome is that both companies will seek legal protection, they said.
The proceedings would put $3.6 billion of OGX dollar bonds into default in Latin America’s largest corporate debt debacle. For Batista, it would culminate an 18-month decline that wiped out more than $30 billion of his fortune after offshore deposits he had valued at $1 trillion turned out to be duds.
Once a judge accepts a filing, the company would have 60 days to present a restructuring plan. The judicial process gives new investors top priority for payments, said Leonardo Morato, chairman of the local affiliate of the Turnaround Management Association of professionals involved with corporate recovery. He declined to comment on OGX’s case specifically.
In a statement to Brazilian regulators Oct. 3, OGX said it’s considering all legal measures to keep the business running and protect its interests. The company and its advisers, Lazard Ltd. and Blackstone Group LP, are analyzing different capital restructuring scenarios, it said.
OGX declined to comment in an e-mailed response to questions. While bankruptcy protection is a legal option for all companies, OSX has no plans to file for the moment, the shipbuilder said in an e-mailed response.
On Sept. 13, Chief Executive Officer Luiz Carneiro said OGX was considering asking bondholders for more cash as it seeks to avoid having to file for bankruptcy protection.
The company missed a $45 million interest payment Oct. 1, prompting Standard & Poor’s to assign a default rating to $1 billion of bonds. Moody’s Investors Service and Fitch Ratings said they’d give OGX the 30-day grace period before calling a default.
As of June 30, OGX had 722 million reais ($327 million) 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.
The OGX restructuring plan envisions that Malaysia’s Petroliam Nasional Bhd., which agreed to buy a 40 percent stake in OGX’s Tubarao Martelo field in May, would begin making payments on the $850 million deal, one of the people said.
Petronas spokesman Azman Ibrahim couldn’t be immediately reached for comment on the OGX plan outside working hours. Petronas Chief Executive Officer Shamsul Azhar Abbas declined to comment on the OGX debt restructuring in an interview with the Edge newspaper published Oct. 5, saying Petronas’s deal with OGX relates specifically to an asset not the whole company.