OSX to Miss Bond Payment as It Seeks Standstill: Brazil CreditBoris Korby and Veronica Navarro Espinosa
OSX Brasil SA, the shipbuilder of former billionaire Eike Batista, will miss next month’s interest payment on $500 million of ship-backed bonds as it seeks a standstill agreement with creditors.
OSX notified bond trustee Norsk Tillitsmann AS of its intentions in a letter released yesterday. The $11.56 million payment on bonds maturing 2015 is due Dec. 20. OSX is seeking to defer the payment to March, according to an Oct. 21 summary of talks between the company, the trustee, bondholders and their advisers that was provided by Norsk Tillitsmann. The notes were little changed yesterday after falling 23 percent this year, more than three times the average drop in emerging markets, data compiled by Bloomberg show.
While OSX declared bankruptcy earlier this month, its leasing unit, through which the company owns the ship securing the debt, wasn’t part of the judicial recovery petition filed in a Rio de Janeiro court. Batista was Brazil’s richest man, with personal wealth that exceeded $34 billion, after OGX’s initial success finding oil in shallow waters off the coast of Rio de Janeiro sparked a stock market rally. His commodity empire crumbled this year as his flagship company was unable to meet oil production expectations.
“Eike wants to buy time,” Russ Dallen, a fixed-income investor at Caracas Capital Markets, said in a telephone interview from Miami. “He’s trying to keep this group out of the bankruptcy filing. I don’t think they will necessarily grant a standstill. There are some that want the cash and want out.”
OSX’s press office didn’t respond to calls and e-mails seeking comment.
“We expect to maintain our good faith discussions in order to reach a mutually acceptable standstill and a comprehensive solution for all issues under the bond agreement,” OSX’s advisers said in the letter to the trustee.
The notes, which traded at 80 cents on the dollar yesterday, are backed by an $800 million production, storage and offloading vessel, known as OSX-3, which was intended to be leased to bankrupt sister company OGX Petroleo & Gas Participacoes SA to pump oil off the coast of Brazil.
OSX bonds are now trading without accrued interest, according to Michael Roche, an emerging-market strategist at broker-dealer Seaport Group LLC.
“Quite a number of people were caught by surprise for certain,” Roche said in a telephone interview from New York yesterday. If OSX doesn’t “get the standstill, investors will seek to exercise their rights as secured creditors.”
OSX’s announcement comes after OGX missed a $45 million debt payment Oct. 1.
If OSX misses the coupon payment without persuading bondholders to agree to the proposed standstill request, creditors will probably begin the process of seizing the ship to recoup their money, Dallen said.
OSX bondholders have already hired law firm Bingham McCutchen LLP to help them navigate the process of taking control of their collateral, two people briefed on the arrangements who asked not to be identified because they’re not authorized to speak publicly said in September.