Oi Creditor Group Led by ACGM Works on Alternative Recovery Plan

  • Creditors must persuade Oi to adopt its proposal instead
  • Funds join Tanure in challenging Oi’s restructuring strategy

A group of Oi SA creditors led by ACGM Inc. is putting together a recovery plan for the beleaguered phone operator that it believes will be superior to the company’s own proposal, ACGM Chief Executive Officer Carlos Abadi said in an interview.

The group, which includes about 20 hedge funds and private equity funds, is planning to submit an alternative to the company after the phone operator presents its own plan in bankruptcy court, Abadi said. He declined to say how much debt the funds hold.

“The board will have the duty of care to do what’s best for the company and we believe that that means adopting our plan,’’ said Abadi, whose New York-based investment banking firm says it was involved in deals including the bankruptcy recovery of Refco Inc. and the restructuring of Allied Irish Banks Plc. Unlike in the U.S., Brazilian bankruptcy law requires creditors to propose recovery plans to the company rather than directly to the court, Abadi said.

Oi filed for bankruptcy protection in June, claiming about $20 billion in debt. The company has remained mired in last place among Brazil’s four big mobile-phone companies and has struggled to contain costs, in part because of government requirements that it maintain outdated infrastructure such as payphones and old buildings.

Oi declined to comment.

The ACGM-led group of creditors, which calls itself Consorcio Oi, said Thursday that law firms Felsberg Advogados and Morrison & Foerster joined the team, which besides ACGM also includes restructuring consultancy Integra Associados and two longtime phone industry executives -- Joao Cox, the former head of America Movil SAB’s Brazilian unit, and Mario Cesar Araujo, former chief executive officer of Tim Participacoes SA.

Oi is already contending with another investor who is offering an unsolicited alternative path for its recovery. Brazilian magnate Nelson Tanure, its second-largest investor, called for two shareholder votes on Sept. 8 on whether to replace part of the company’s board with his nominees and consider legal action against its top shareholder, Pharol SGPS SA.

Abadi said Tanure has a great chance of getting his nominees elected to Oi’s board. That wouldn’t change Consorcio Oi’s plans, he said.

“Whether it is Tanure or Pharol on the driver seat, we intend to behave the same way,’’ Abadi said. “We believe our plan is superior to both Pharol’s and Tanure’s.’’

Consorcio Oi’s plan would let creditors choose whether to exchange debt for equity or for a lower amount of newly issued debt. The group would also focus on cutting costs and increasing productivity.

“The operational restructuring deals with a lot of low-hanging fruit that have been left by the previous management because Oi has for many years been managed as a Brazilian state-owned company, not a company for the profit of its shareholders,’’ Abadi said.

While Oi’s timetable to present a recovery plan may be extended until October, CEO Marco Schroeder told reporters last week the company wants to submit it by early September, according to Reuters.

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