Pimco-Led Cash Buying Batista Time as Loans Loom: Brazil CreditJuan Pablo Spinetto, Cristiane Lucchesi and Peter Millard
Eike Batista’s oil company will get the first payment in a rescue plan as early as next week, said two people with knowledge of the transaction, offering a glimmer of hope it can salvage some value from Latin America’s biggest corporate debt debacle.
Oleo & Gas Participacoes SA, the Rio de Janeiro-based company known as OGpar, missed its February target for securing the first installment of $125 million from funds pledged by creditors including Pacific Investment Management Co. The payment probably will be made next week, said the people, asking not to be named as the process is private.
The producer, which filed for bankruptcy protection in October, is counting on the money to pay $65 million in loans that mature this month. Without the cash, OGpar would face closure, the company said in its plan to emerge from protection, presented to a Rio court Feb. 14. Notes of the company formerly known as OGX have lost 93 percent in the past year.
“This financing would allow the company to continue with operations and its judiciary strategy,” Leonardo Theon de Moraes, a bankruptcy lawyer at Mussi, Sandri & Pimenta Advogados, said by telephone from Sao Paulo. “If it happens, it will be positive because the company will be able to fulfill its recovery plan.”
OGpar and Batista’s holding company EBX Group Co. declined to comment on the payment schedule when contacted by Bloomberg News. Pimco spokeswoman Agnes Crane didn’t respond to requests for comment when contacted by phone and e-mail.
The producer is finalizing terms required for receiving the installment, one of the people said yesterday. Reasons for the delay include Brazilian red-tape and discussions with advisers to reduce initial fee payments, said the other person.
“It is unfortunately quite the norm that target dates to achieve an agreement with creditors or an agreement for fresh funding frequently take longer than expected,” said Renee Dailey, a partner at Bracewell & Giuliani LLP in Hartford, Connecticut. “I would imagine they are quite motivated to get this deal in place.”
The oil company, whose cash position at the start of February was $1 million, needs to pay back a $50 million bridge loan on March 14 and a $15 million short-term credit on March 29, according to its recovery plan. OGpar said Feb. 7 that it will receive $215 million in funding after sealing a debtor-in-possession agreement with its lead creditors in return for a controlling stake, with the first tranche scheduled for mid February.
To receive the funding OGpar needs to fulfill conditions such as sustaining minimum output levels at its only producing oilfield and reaching accords with third parties including sister company OSX Brasil SA over the lease of a production vessel, according to terms released by the company Feb. 13.
OGpar, which hasn’t posted a profit since the second quarter of 2010, surged in value to as much as 75.2 billion reais ($32.4 billion) that year after reporting discoveries at more than 80 percent of wells drilled, allowing Batista to tap debt markets to finance operations while making him Brazil’s richest man. Shares crashed 99 percent since then as the company missed production targets and abandoned fields.
The stock was unchanged at 26 centavos at 1:24 p.m. in Sao Paulo while the dollar-denominated bonds due 2018 were unchanged at 6 cents on the dollar.
The company, which spent more than 10 billion reais since its foundation in 2007, filed for protection from creditors in October after missing a $45 million interest payment.
For its recovery plan to work, OGpar also needs to succeed at Tubarao Martelo, or Hammerhead Shark, a new field 95 kilometers (59 miles) off the Rio coast. Martelo produced an average of 11,350 barrels a day in January after starting output in early December, according to information on its website. The company is also running tests at the nearby Tubarao Azul field to study resuming output.
The company hopes to sustain current rates and later expand output at Martelo with additional wells. At Azul output peaked in the first few months and then faded because the compartmentalized reservoir rocks hindered the flow of oil.
OGpar’s plan also needs to secure court approvals and overcome minority bondholder opposition. First, it needs funding to continue operating.
“Not obtaining the new resources would probably mean the discontinuation of activities and the likely liquidation of the OGX Group even before the deliberation of this plan,” OGpar said in documents delivered to court Feb. 13.
Receiving the first debtor-in-possession financing installment gives the company some breathing space, said Russell Dallen, head trader at Caracas Capital.
“They still have to sell assets, get production up at Tubarao Martelo,” he said by by telephone from Miami. “They’ve got a few more months to get their act together, and it’s not at all certain they’ll be able to do that,”