SÃ O PAULO—Brazil's troubled telephone company Oi SA on Monday filed the largest bankruptcy protection request in the country's history just days after debt restructuring talks with creditors collapsed.

The filing of Oi and six subsidiaries lists 65.4 billion reais ($19.26 billion) in debt.

In its filing, the company said it chose judicial reorganization to preserve the value of its holdings and to continue providing service to its customers.

A person familiar with the bankruptcy filing said it would be the largest in Brazil's history if it is accepted by the court.

Oi Chief Executive Bayard Gontijo resigned from his post June 10. Although Oi gave no reason for his departure, Mr. Bayard was under severe pressure from company shareholders who had been resisting a proposal by creditors to convert a total of 25 billion Brazilian reais in debt to equity.

That plan would have significantly diluted the company's shares, giving a 95% stake of the restructured business to its bondholders. Shareholders balked at the prospect, and the talks fell apart.

Late last week, Fitch Ratings downgraded Oi by two notches to C from CCC, well below investment grade.

"Oi's current capital structure is unsustainable, and the company faces an imminent default risk given sizable short-term debt maturities," Fitch said.

Since 2009, Brazil's fourth-largest telecom company has accumulated a huge amount of debt to complete two mergers, first with Brasil Telecom and later with Portuguese company Portugal Telecom. Those deals failed to generate enough cash flow to fund the company's investment needs.

Oi has low penetration in the mobile phone and broadband markets, the most critical and profitable segments of the telecommunications sector in Brazil.

As of March 31, Oi had reported gross debt of about 50 billion reais ($14.72 billion), about 38.9 billion reais of which was held by international bondholders.

The recent debt negotiation has involved Oi's main shareholder, Bratel BV, which controls a 22.24% stake in the company. Bratel is an investment vehicle formed by former shareholders of Portugal Telecom, using the official name Pharol SGPS.

On the other side of the table, investment bank Moelis & Co. is advising creditors with around 40% of outstanding bonds, including big international players such as Pacific Investment Management Co., Citadel LLC and Wellington Management Co.

About a quarter of Oi's debt belongs to commercial banks, such as Banco Itaú SA, Banco Santander SA, Banco do Brasil SA and Caixa Econô mica Federal. Another 5% is in the hands of development banks, such as the Brazilian Development Bank and Banco do Nordeste do Brasil SA.

Other shareholders include the Ontario Teachers' Pension Plan, with a 4.77% stake; the equity arm of Brazil's development bank, known as BNDESPar, with 4.63%; and investment firm BlackRock Inc., with 0.96%. Oi has a free float of 49.23%. The rest of the company's capital is in its own treasury.

During Brazil's commodities boom, Oi was seen as a potential national champion that could become a global player. But the Rio de Janeiro-based company failed to compete with international telecoms in the local arena, in part because it didn't have the same financial resources.

Brazil's market leader is Telefó nica Brasil SA, also known as Vivo, which is part of Spain's Telefó nica SA; followed by TIM Participaç õ es SA, a unit of Telecom Italia SpA; and Claro, the local unit of Mexico's Amé rica Mó vil SAB de CV.

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and Luciana Magalhaes at Luciana.Magalhaes@dowjones.com

 

(END) Dow Jones Newswires

June 20, 2016 20:25 ET (00:25 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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