OSX Bonds Backed by $800 Million Ship Rally Before Bankruptcy

Secured bonds sold by former billionaire Eike Batista’s shipbuilder OSX Brasil SA are trading at a two-month high before a bankruptcy filing that may come as soon as today.

The company’s $500 million of debt due in 2015 has climbed 10 cents to 83 cents on the dollar over the past month, according to data compiled by Bloomberg. The securities are backed by the $800 million OSX-3 floating production, storage and offloading vessel that was intended to be leased to bankrupt sister company OGX Petroleo & Gas Participacoes SA to pump oil off the coast of Brazil.

OSX’s leasing unit, through which the company owns the OSX-3, won’t be part of the judicial recovery petition expected to be filed today in a Rio de Janeiro court, according to two people familiar with the matter, who asked not to be identified because decisions haven’t been made public. While OSX’s notes are among the worst-performing secured debt in emerging markets this year, they have avoided the rout that has wiped out almost all other securities issued by Batista’s companies.

“If the entity that owns the vessel isn’t going to file, is not going to go through the bankruptcy, it means they probably don’t have any intent to default,” Revisson Bonfim, an analyst at Espirito Santo Investment Bank, said in a telephone interview from New York. “Defaulting on unsecured debt is one thing. Defaulting on secured debt where creditors have liens, that’s completely different.”

OSX’s shares have tumbled 95 percent this year to 54 centavos, according to data compiled Bloomberg.

Shielding Creditors

The collateral backing the bonds has also shielded the company’s creditors from losses suffered by OGX bondholders. OGX’s $2.56 billion of defaulted notes due 2018 have plunged 81 cents this year to 9.5 cents on the dollar.

OSX creditors have hired AlixPartners LLP to work alongside legal adviser Bingham McCutchen LLP to advise on a possible restructuring, according to people with knowledge of the matter.

“It’s an asset that cost close to $1 billion, and it’s backing $500 million of bonds,” Bonfim said. “It’d be hard not to get that value back.”