New York Hedge Fund Faces ‘Vulture’ Critic in Brazilian Bond Bet

  • Nelson Tanure decries fund’s ‘vulture’ tactic, Dutch strategy
  • Courts in 3 continents tangled in $19 billion restructuring

Aurelius Capital Management has a long and mostly successful track record in some of the decade’s most contentious restructurings, including Argentina’s sovereign debt and Peabody Energy’s coal bankruptcy.

But it’s never met someone like Nelson Tanure, a bespectacled 65-year-old Brazilian businessman with a receding mane of wavy gray hair and a self-proclaimed mission to recreate the greatest telecommunications firm his country has ever seen.

Using Brazil’s strong shareholder-protection laws, Tanure is proving a thorn in the side for Aurelius and other investors in Oi SA, owner of the world’s second-largest fiber optic network. After buying up stock and gaining board seats, Tanure found his interests aligning with several U.S. hedge funds, some of which have made the unusual move of buying an insolvent company’s equity. 

Decrying what he calls Aurelius’s “vulture” tactics with the debt of two of Oi’s Dutch units, Tanure now pulls key strings as the company restructures its $19 billion in debt -- and may also find a friend with a common enemy: a group of hedge funds that hold Oi’s other debt. While that group collaborated with Aurelius’s group on a restructuring plan, the company and its creditors are still far apart.

The global dispute, whose players are a virtual who’s who of distressed-debt titans, is coming to a head. A trustee for the Dutch units will ask a New York bankruptcy judge this week to affirm that the units can reorganize in the Netherlands rather than Brazil. Both Oi, backed by Tanure, and the other debt holders oppose the bid, prompting a trial that will dredge through emails and letters from Aurelius stars including Dan Gropper and Mark Brodsky. 

The outcome could amplify returns for Aurelius and other holders of Dutch debt, or turn their distressed-debt play -- already more than a year in the making -- on its head.

New York-based Aurelius declined to comment.

‘No Precedent’

Meanwhile, the fate of the sole phone-services provider to hundreds of Brazilian cities hangs in the balance, with its regulator threatening to dismantle it.

“It’s not about Aurelius against Oi or against a shareholder, but Aurelius against Brazilian law,” Tanure said in an interview, saying Aurelius’s legal strategy of reorganizing part of the company abroad "makes no practical sense."

Oi filed for Brazil’s biggest bankruptcy in June 2016, blaming Aurelius and other hedge funds. Aurelius, which sits on a steering committee of a shifting group of investors with $2.6 billion in Oi debt, mostly in the Dutch units.

In court papers, the group said parties in the case have an “unhealthy obsession” with Aurelius, and that Dutch unit holders are just trying to protect their collateral, 6.1 billion euros ($7.3 billion) of which was moved out of their reach by transfers to parent Oi and its Brazilian affiliates.

‘Actio Pauliana’

Oi’s Dutch unit should reorganize in the Netherlands because it was originally incorporated there for tax advantages, and can’t now walk away, the group says. The long-fought battle to keep it under Dutch law also has a financial reason: the Netherlands system allows for “actio pauliana,” or clawbacks, that could be used to recoup the billions.

While the trustee already won a Dutch court’s permission, Brazilian courts differ. A ruling in the U.S., which has an insolvency law intended to apply globally, could help resolve the jurisdictional split.

Tanure, sometimes described by Brazilian media as a vulture himself, is a small-time player compared to Aurelius and its $3.5 billion in assets under management.

He has a mixed record of local investments -- including a failed newspaper brand and a telecom investment, Intelig Telecomunicacoes Ltda., that lasted only a year. His fund, Societe Mondiale, reported an Oi stake shortly after its bankruptcy, and was at first barred from board meetings.

Calling Witnesses

But the man persevered. He was said to meet with other equity holders, including PointState Capital LP, to discuss capital injections. Goldman Sachs Group Inc. holds a minority position in the company’s shares as well.

Tanure won’t be appearing in New York court to oppose Aurelius himself, but Oi will, calling witnesses including an insolvency law professor and Aurelius’s Gropper.

“Oi believes the U.S. court will maintain last year’s decision, which recognized the Brazilian justice as the main court to process and judge the company’s judicial recovery,” Oi said in a statement.

Holders of around $3 billion in Oi’s Brazilian debt, recently said to be joined by Brookfield Asset Management Inc., will also fight the Dutch bid.

As debt holders, they would normally be opposed to Tanure and other stockholders. Here, they share a common enemy, questioning in pretrial hearings whether Aurelius manipulated the prior Dutch court’s finding, potentially through a loan to the trustee overseeing the unit.

Only companies, not creditors, can manipulate such a finding, which is based on objective factors like where assets and employees are based, a lawyer for the Aurelius group said in the pretrial meeting.

Regardless of how the trial goes, the challenge won’t end in New York.

Shareholder Power

In Brazil, shareholders both shape an initial restructuring plan, and have voting power on its final terms. That stands in contrast to the U.S., where equity holders come last, and often can’t vote.

“In Brazil, shareholders are the ones that make decisions," said Paulo Campana, a partner in the Sao Paulo office of Felsberg Advogados, who advises some individual bondholders in the case.

Brazil’s shareholder powers mean Tanure and cohorts have already been negotiating a proposal, and delays from the Dutch litigation could provoke Oi’s regulator to take over the company. Brazilian courts could also refuse to comply with a New York ruling, or Oi’s shareholders could simply refuse to vote for a plan that gives away billions for the Dutch claims.

For Tanure, the battle is about more than money. The legal maneuver “opens the possibility that a judge outside the country simply doesn’t recognize Brazilian law,” he said, creating a dangerous precedent for all national companies that have business abroad.

— With assistance by Cristiane Lucchesi, and Larry Reibstein

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