Three distressed asset funds have sued for the right to participate in a 4 billion reais ($1 billion) capital increase for Brazilian telecom Oi SA as part of its in-court restructuring, four sources with knowledge of the matter said last week.
The fight for the chance to invest in Oi, Brazil’s largest fixed line carrier, reveals a sharp turnaround in investors’ perception of a company that flirted with liquidation a year ago. Brazil’s consumer-led economic recovery and bets on industry consolidation have boosted interest in the company after three years of battles between shareholders and creditors.
A bankruptcy court judge responded to the lawsuits by authorising participation in the capital injection for two of the funds, which were not party to the recovery plan approved by 16 investment firms at a December creditors meeting.
Marble Ridge Capital LP and Burlington Loan Management DAC, an investment vehicle managed by US distressed debt hedge fund Davidson Kempner Capital Management LLC, were cleared to take part in the operation.
US-based Silver Point Capital LP had its first request denied by Rio de Janeiro judge Fernando Viana, because it sought a higher share of the capital increase than corresponded to the Oi debt in its possession before the creditors’ meeting. It was unclear whether Silver Point was continuing its efforts in court.
Oi, Marble Ridge, Davidson Kempner and Silver Point all declined to comment on the previously unreported bankruptcy court filings and rulings.
Funds participating in the capital increase, which the company hopes to carry out by year-end, will receive a bonus of 8 to 10 per cent of the amount they invest, either in cash or additional shares.
Oi collapsed under 65 billion reais of debt in 2016, kicking off Latin America’s largest-ever bankruptcy protection proceedings. The contentious restructuring had US and UK distressed debt hedge funds squaring off in courts on three continents.
A pivotal decision last December allowed most of the debt to be converted into equity, marking a rare bondholder win in Brazil’s slow-moving bankruptcy courts.
The debt-for-equity swap will convert tens of billions of reais in debt into an equity stake of about 70 per cent of the reorganised company.
In a subsequent phase of the recovery plan, the new shareholders will inject an additional $1 billion into the company, further slashing its debt ratios.
The three largest shareholders after those two operations will be hedge funds GoldenTree Asset Management LP, York Capital Management Global Advisors LLC and Solus Alternative Asset Management LP, with a combined 28 per cent stake in the company, according to the sources. — Reuters
Carolina Mandl, Tatiana Bautzer, Gram Slattery