Aurelius Said to Amass Oi Stock as Bankruptcy Battle Deepens

  • Volume surged following word of telecom company’s bankruptcy
  • Unlike U.S., stockholders tend to drive Brazilian negotiations

Aurelius Capital Management is scooping up shares of Oi SA to bolster the hedge fund’s position in negotiations to restructure $19 billion of debt at the struggling Brazilian telephone company, people with knowledge of the matter said. 

Aurelius, which last week pushed back against a debt reorganization plan proposed by a group of Oi’s biggest creditors, started buying stock about the time that Oi sought bankruptcy protection in Brazil on June 20, said the people, asking not to be named because the matter is private. 

Brazil’s largest bankruptcy filing came amid heavy trading in Oi’s stock, with daily volume on the common and preferred shares surging to more than double recent levels in the days before and after the filing. Investors may have piled into Oi’s shares with the intent of securing a better seat at the table for negotiations on the reorganization. Unlike the U.S., where debt holders typically lead restructurings while equity owners get wiped out, stockholders in Brazil often drive the direction of the talks. 

Brian Schaffer, a spokesman for New York-based Aurelius at Prosek Partners, and an Oi spokeswoman declined to comment.

Marathon Position

Aurelius is building its equity stake as other investors jockey for control of Oi. They include Brazilian magnate Nelson Tanure, who is questioning whether the largest shareholder, Pharol SGPS SA, can legally hold seats on the board. Pharol holds 27.5 percent of Oi’s voting shares, but its voting power is limited to 15 percent, according to the company’s articles of association.

Morgan Stanley holds 7.6 percent of Oi’s voting shares, while Tanure’s Societe Mondiale Fundo de Investimento em Acoes holds 7 percent, according to the company’s website and recent filings. Brazil’s development bank has 5.7 percent and Pointstate Capital LP holds 5.2 percent.

Marathon Asset Management has amassed 9.2 percent of the company’s non-voting shares, according to data compiled by Bloomberg. “We look forward to working with the company, regulators and advisers over the next several months,” said Gabriel Szpigiel, partner of Marathon Asset Management. “We are very excited about the long-term prospects of Oi.”

Opposition Creditors

Aurelius, which is also a bondholder, is simultaneously trying to organize a group of creditors to oppose a cluster of Oi’s biggest debt holders including billionaire Ken Griffin’s Citadel LLC and Western Asset Management Co. The larger group of 70 creditors, advised by Moelis & Co., owns $4 billion of Oi securities. The dispute revolves around bonds issued by Oi’s subsidiaries, particularly Telemar Norte Leste SA, which provides telecom services in states including Rio de Janeiro.

Oi’s $1.43 billion of 5.75 percent senior unsecured bonds maturing 2022 traded at 21.5 cents on the dollar as of 2:39 p.m. New York time, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt lost more than half its value this year. The company’s shares traded at 2.93 reais in Sao Paulo, up from 1.26 on June 20, while the preferred stock rose to 2.54 reais from 99 centavos over the same period.

Aurelius asserts that the rival group represents owners of only one particular bond issued by Telemar, and says it wants to orchestrate a better deal for bondholders who don’t own Telemar debt, people told Bloomberg last week. As much as 60 percent of the bonds Moelis represents are not tied to Telemar, Moelis said in a statement Monday.

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