Oi Moves Toward Talks With Bondholders Amid Restructuring

  • Phone company jumps as much as 30 percent in intraday trading
  • Accord lets Oi negotiate with group represented by Moelis

Oi SA, the Brazilian phone carrier, signed a non-disclosure agreement to begin talks with a group of bondholders, aiming to quickly complete a restructuring process.

The accord with Moelis & Co., which is advising the bondholders, is a first step toward negotiations over restructuring terms, Rio de Janeiro-based Oi said in a statement. Customers won’t be affected by the restructuring process, the phone carrier said. Oi shares surged as much as 30 percent.

Oi, whose name means “hi” in Portuguese, is Brazil’s most indebted phone operator. In addition to offering wireless service, it operates part of the country’s landline phone system, which has proven onerous -- the company has a legal commitment to expand and maintain the obsolete network. Oi had about 5 billion reais ($1.4 billion) of interest expense in 2015, far more than the roughly 2.7 billion reais of operating income it had available to pay those costs, according to data compiled by Bloomberg.

Restructuring Oi’s debt won’t be easy. The company issued bonds from at least three entities, some of which have guarantees from other Oi units. The company issues and borrows in U.S. dollars, euros, and Brazilian reais, and has lenders and investors ranging from European banks to Brazilian individuals.

Oi shares climbed 28 percent to 1.18 reais at 11:46 a.m. in Sao Paulo, and jumped as high as 1.20 reais in their biggest increase since January. The stock has tumbled almost 40 percent this year.

Bloomberg reported earlier this month that Oi was in the process of negotiating with a committee of international bondholders represented by Moelis, citing people with knowledge of the matter. A group of bondholders was also talking to adviser Houlihan Lokey Inc., to create another group to negotiate with the company, said the people. Oi had hoped to only negotiate with Moelis, the people said.

Before it's here, it's on the Bloomberg Terminal.