Judge Said to Let Oi Borrow From Unit in a Blow to Aurelius

  • Struggling Brazilian carrier said to win ruling in Amsterdam
  • Capricorn, an Aurelius fund, holds bonds of Portugal Telecom

A judge ruled against a fund run by Aurelius Capital Management LP that’s trying to stop struggling Brazilian telephone company Oi SA from borrowing from its Dutch unit, said two people with direct knowledge of the matter.

The decision deals a blow to the fund, Capricorn Capital Ltd., whose lawsuit in Amsterdam argued that Oi is unable to repay 2.8 billion euros ($3.2 billion) it borrowed from the unit, Oi Brasil Holdings Cooperatief UA, because of its worsening financial situation. Capricorn said the money mostly came from a loan the Dutch unit took out in June 2015 from another Oi subsidiary, Portugal Telecom International Finance, or PTIF. Capricorn owns PTIF bonds with a face value of more than 100 million euros, according to its lawsuit.

Oi argued that its Dutch unit is free to use borrowed funds to lend to the parent company because individual lenders don’t have the right to question it, a person with knowledge of the matter said last month, asking not to be identified discussing private information.

Bloomberg News obtained a copy of the judge’s decision, and an Aurelius representative confirmed the contents of the document, declining to comment further. Oi declined to comment.

Aurelius has previously been involved in litigation against borrowers including the government of Argentina and Energy Future Holdings Corp., formerly TXU Corp.

Heavy Debt Load

Oi, the fourth-biggest mobile-phone operator in Brazil, is suffering from a heavy debt load and from legal commitments to the nation’s government to expand and maintain an obsolete landline phone network.

In October, Russian billionaire Mikhail Fridman proposed merging Oi with Telecom Italia SpA’s Brazilian unit, a deal that would have pumped $4 billion into Oi. The transaction fell through in February.

Oi said earlier this year it hired PJT Partners to advise it on how to manage its debt, which totaled more than 60 billion reais ($17 billion) at the end of the fourth quarter, according to data compiled by Bloomberg.

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