Petrobras Earnings Report Spurs Bond Rally as Stock Price Falls

Petroleo Brasileiro SA’s report of a record loss, which sent the company’s shares into a swoon, has heartened bondholders who feared a prolonged delay of audited results might trigger a technical default.

The Brazilian state oil producer’s $2.5 billion of bonds due in 2024 advanced 1.2 cents to 100.5 cents on the dollar today in New York, near a four-month high. The Rio de Janeiro-based Petrobras’s preferred stock fell 3.1 percent to 12.72 reais at 11:08 a.m. in Sao Paulo, the biggest slump on the Ibovespa benchmark.

Petrobras, embroiled in a corruption scandal that stumped executives and accountants for months as they struggled to tally costs related to graft, said late Wednesday that it lost a record 21.6-billion real ($7.1 billion) in 2014. Under the terms of the company’s debt, a delay of the earnings report past this month would have allowed some bondholders to demand immediate repayment, a scenario that could have increased the potential for additional losses.

“The write-off was aggressive, but well-received by the market, since results will give the market a brighter picture of the company’s debt levels,” Marcelo Lima, a fixed-income trading manager at INTL FCStone in Miami, said in a note to clients. “The next step should be an operational and administrative restructuring, which will also be very positive in the medium and long term.”

The loss stemmed from charges related to the graft as well as writedowns linked to lower energy prices and delays and overruns at two processing plants.

Auro Rozenbaum, a stock analyst with the brokerage firm Banco Bradesco BBI, said Petrobras’s high indebtedness and lower oil prices present a risk to shareholder payouts. Chief Executive Officer Aldemir Bendine said Wednesday that Petrobras won’t pay dividends this year to preserve cash.

“The issuance of Petrobras’ audited statements has not changed our negative view on the stock,” Rozenbaum wrote in a report. The writedowns were “stratospheric.”

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