Oi Bonds Decline After Rothschild Hired for Advice

  • Bonds traded near 50 cents on restructuring speculation
  • Phone company forecast to report losses through 2017

Oi SA’s bonds tumbled to the lowest price since they were issued in 2012 after Brazil’s most-indebted phone company said it hired Rothschild for advice on how to make its finances more efficient.

Oi’s $1.5 billion of notes due 2022 sank 9.6 percent to 57.98 cents on the dollar at 2:14 p.m. in Sao Paulo after the company said Rothschild will assess how it should use funds from the sale of Portugal Telecom assets as it looks to extend debt maturities and improve its financial profile. The notes earlier fell as low as 42.5 cents after Veja columnist Lauro Jardim reported Sunday that the company was seeking a debt restructuring. Oi shares reversed earlier gains and declined 6.7 percent to 3.6 0reais, the worst performance in the Ibovespa.

Brazil’s fourth-biggest mobile carrier is forecast to post losses through 2017 after it agreed to merge with Portugal Telecom in 2013 to compete against Telefonica SA and Carlos Slim’s America Movil SAB. It’s imperative that the company reduces the risk of having debt in dollars and euros while most of its revenue is in reais, according to David Tawil, the co-founder of hedge fund Maglan Capital in New York.

"The current capital structure is not viable, even in the medium-term," Tawil said from New York. "I would think that a debt restructuring, sooner rather than later, would be best as the current capital structure will continue to sap the company of vital capital resources."

The carrier said last month that it is evaluating the sale of telecommunications towers and call centers to trim costs as it seeks to push out maturities on its debt. Earlier this month, shareholders approved a restructuring plan that includes the option to convert preferred shares into voting shares and a new board, according to regulatory filing Sept. 1.

Standard & Poor’s and Fitch Ratings stripped the telephone company of its investment grade last year.

Oi has been working to improve operations and help refinance debt since Chief Executive Officer Bayard Gontijo took over in October 2014 to become the third CEO of the company in less than two years.

(Corrects to show company lost investment grade in 2014.)
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