Oi Creditors Split Off as Bankruptcy Fights Deepen

  • Shuffle unites Griffin’s Citadel with Brodsky’s Aurelius
  • Bondholders tussle over status of non-Telemar securities

A group of bondholders negotiating with bankrupt Oi SA has fractured, complicating efforts to ease the Brazilian phone giant’s $19 billion debt burden.

The split includes Ken Griffin’s Citadel hedge fund firm, which joined a group that already counts Mark Brodsky’s Aurelius Capital Management among its members, said the people, who asked not to be identified because the matter is private. Aurelius had been trying to form a separate faction and talks have been held with restructuring advisers including Brasil Plural SA Banco Multiplo, the people said.

The new group is represented by Allan Brilliant of Dechert LLP in the U.S., Marcelo Carpenter of Sergio Bermudes in Brazil and Frederic Verhoeven of Houthoff Buruma in the Netherlands, the group said in a statement on Nov. 11.

Creditors have been jockeying for better position in a restructuring even before Rio de Janeiro-based Oi filed for bankruptcy in June. Noteholders are arguing about whose bonds have higher priority for getting repaid, with Aurelius contending that the original 70-member group organized by Moelis & Co. can’t represent all creditors because of those differences. Citadel, which oversees about $26 billion, had been a member of the original group’s steering committee.

Representatives for Oi, New York-based Aurelius, Chicago-based Citadel and Brasil Plural in Sao Paulo declined to comment. Officials at Dechert and Moelis didn’t respond to requests seeking comment.

Senior Status

The new group oversees $1.5 billion in securities that are “heavily weighted” toward debt that isn’t guaranteed by Oi’s Telemar Norte Leste SA unit, according to a Nov. 11 statement from Dechert. The group says its debt -- issued by other Oi units -- isn’t junior to Telemar-backed bonds, while some investors argue the opposite.

Moelis still represents about $3.5 billion of debt, and about 60 percent of those bonds aren’t secured by Telemar, one person said.

Bondholders are also at odds with shareholders on a restructuring plan introduced in September. It included a reduction of as much as 70 percent in the value of Oi’s bonds, the right of the company to redeem convertible bond holdings, asset sales, new resources and the possibility of a merger or breakup. Creditors have criticized the plan as being too favorable to shareholders.

Aurelius Disputes

Disputes began percolating even before Oi went bankrupt, with the company seeking to have Moelis as the only firm authorized to negotiate a restructuring with international bondholders, Bloomberg reported in April.

Aurelius is among investors that have pushed back. In July, the fund tried to foil a restructuring plan proposed by the Moelis group, which was seeking to assemble support from a wider array of stakeholders after its initial effort failed. Aurelius dismissed the idea, with Brodsky calling it "a Telemar noteholder group dressed up to look like a broad-based Oi noteholder group."

His fund also sued in a Dutch court earlier this year to stop Oi from borrowing from its Dutch unit, Oi Brasil Holdings Cooperatief UA. Aurelius claimed the company was unable to repay 2.8 billion euros ($3.1 billion) it borrowed from the Dutch entity due to the parent’s worsening financial situation. A judge rejected the suit.

Oi filed the biggest bankruptcy in Brazil’s history after some board members disagreed with a debt swap proposed by the Moelis group that would have given bondholders 95 percent of the company.

Brazil’s fourth-biggest wireless company was built through a series of mergers and went through a number of leadership changes. It operates as part of the country’s landline phone system, which has proven onerous because of a legal commitment to expand and maintain the obsolete network. Oi aims to keep serving customers through the bankruptcy process, the company said in a filing.

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