Oi Slumps as Talks Stall on $14.5 Billion Debt Restructuring

Updated on
  • Creditors seeking 95 percent of the company after swap
  • Telecom company hasn’t responded to creditors’ proposal

Shares of Oi SA tumbled on speculation that Brazil’s most indebted telecommunications operator is closer to filing for bankruptcy protection after documents released Friday showed little sign of progress in talks with bondholders.

The documents give a glimpse into just how complicated the restructuring is. Rio de Janeiro-based Oi, which has about 50 billion reais in debt ($14.5 billion), said creditors are seeking to hold 95 percent of the company after a debt-to-equity swap plan, leaving current shareholders with a 5 percent stake. Oi hasn’t yet responded to the proposal, which is dated June 11 -- one day after then-Chief Executive Officer Bayard Gontijo resigned.

Preferred shares of Oi fell 27 percent in Sao Paulo Friday to 1.10 real. They have declined 44 percent this year. Voting shares slid 2.9 percent, bringing their losses for 2015 to 44 percent as well.

“With each passing day, Oi’s situation gets worse and worse,” said Luiz Roberto Monteiro, a trader at brokerage firm Renascenca DTVM in Sao Paulo. “Without an agreement with creditors, the company will likely file for bankruptcy protection. We’re getting to a point where there isn’t much else the company can do.”

Oi declined to comment on speculation it will file for bankruptcy. Although negotiations will continue, the company can’t “ensure the negotiations will continue and, if they do, that they’ll result in an agreement,” it said in a filing Friday.

The fourth-biggest mobile-phone operator in Brazil is running out of time as a 231 million euro-denominated ($261 million) bond matures in almost a month. The company forecasts it will finish the second quarter with total debt of 48 billion reais, with negative cash flow after interest of 2.5 billion reais. Cash flow after interest and before amortization is projected to be negative 7 billion reais between 2016 and 2018, according to the documents.

Oi also 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. It had about 5 billion reais of interest expenses 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.

The bondholders want a minimum of 95 percent of bonds to participate in the exchange, and maturities to be extended by six years after the deal is closed, with no amortization until the seventh year. The proposal also says the exchange offer must include consents for an out-of-court recovery, “on the same economic terms as the exchange offer.”

The company is being advised by PJT Partners while bondholders are represented by Moelis & Co.

(Updates with analyst comment in fourth paragraph.)
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