Eike Batista’s shipbuilding company intends to leave out from a bankruptcy protection filing three oil vessels used as collateral for $1.77 billion of debt, said two people with direct knowledge of the matter.
OSX Brasil SA is planning to file a judicial recovery petition, as the process is known in Brazil, by early next week, the people said, asking not to be named because the decision hasn’t been made public. The company’s leasing unit, through which it owns the OSX-1, OSX-2 and OSX-3 platforms, won’t form part of the filing, they said.
Credit Suisse Group AG was hired to help sell OSX-1 and OSX-2 that guarantee two syndicated loans with a total value of $1.27 billion, people familiar with the matter said last month. OSX’s sole international bond of $500 million is also guaranteed by a vessel, OSX-3. The bond is booked at 1.1 billion reais ($480 million) as of June 30.
If the platforms were included in a judicial recovery filing, they would need to wait the 180-day protection period against creditors to be sold. Creditors can sell assets regardless of any auction, public sale or any other judicial or extra-judicial measure. Proceeds will be used to pay off the loan and cover expenses related to the performance of the guarantee before going to the company or other creditors.
The decision to file for protection against creditors has already been made and while it may be lodged as soon as this week, next week is more likely, one of the people said. OSX would follow Batista’s oil company and its biggest client, OGX Petroleo & Gas Participacoes SA, into protection proceedings.
Alvarez & Marsal Inc., the restructuring company that worked on the Lehman Brothers Holdings Inc. bankruptcy case, is advising OSX, while legal firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados is advising Batista’s EBX group on debt restructuring, the people said.
The debt from OSX’s shipyard unit will be included in the filing for bankruptcy protection, the people said. The shipyard unit 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. State-owned Caixa also granted a loan of 627.4 million reais to the unit, according to its earnings statement.
Since Aug. 18 state development bank BNDES has been pushing out maturities on a loan for 518 million reais with guarantees from Banco Votorantim SA and no vessel as collateral, two people with knowledge said last month.
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-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.
DVB Group Merchant Bank (Asia) Ltd. led a group of banks and government agencies -- including units of Credit Agricole SA, 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, Citigroup Inc., ABN Amro, Banco do Brasil SA and NIBC Bank NV to build OSX-2. The loan is booked as 1.4 billion reais on OSX’s balance sheet.
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.
Shares of OSX lost 95 percent in the past 12 months, reducing its market value to about 200 million reais. The stock fell 19 percent to 52 centavos in Sao Paulo today, giving back most of the ground made yesterday in a 21 percent surge.
OSX’s dollar bonds due 2015, which are backed by a contract to lease the platform to OGX, have fallen 24 cents this year to 80 cents on the dollar yesterday. The notes rose to 83 cents at today. Bondholders 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.
Bingham approached prospective financial advisers on behalf of the creditor group after investors hired the law firm, two people briefed on the arrangements told Bloomberg News in September.
Timothy DeSieno, a partner at Boston-based Bingham, didn’t reply to an e-mail and voice-mail seeking comment.