By Peg Brickley
The financial woes of Brazil's embattled OAS Group have sparked
an international bankruptcy duel and sent bondholders to a New York
court for aid.
Investors owed $943 million fear they won't get fair treatment
from the Brazilian court overseeing the construction company's debt
restructuring. On Tuesday, they will ask a bankruptcy judge in New
York to acknowledge an insolvency proceeding they launched in the
British Virgin Islands as the proper forum to work out the fate of
OAS's international bond debt.
The construction giant filed for bankruptcy protection in Brazil
after being accused by prosecutors of charging inflated fees on
contracts involving that country's national oil company, Petróleo
Brasileiro SA, or Petrobras. OAS says it will sell assets to pay
down its debts and preserve its construction business.
The company couldn't immediately be reached Tuesday to discuss
the corruption allegations or the new action brewing in New York,
where Brazilian insolvency administrators and officials appointed
by a British Virgin Islands court are preparing to face off over
OAS Finance, a financing shell company.
OAS is moving ahead with a turnaround effort in Brazil, over the
objections of some investors. In a news release earlier this year,
OAS reported its victory in a Brazilian court fight with the
"'vulture' Aurelius, a North American fund renowned for speculating
with bonds traded in the secondary market." Aurelius Capital
Management, which owns OAS bonds, unsuccessfully challenged a
ruling that wrapped the financing unit into the Brazilian
insolvency proceeding. An Aurelius representative wasn't
immediately available for comment on Tuesday.
Bondholders say OAS Finance is a British Virgin Islands company,
owed more than $1 billion by Brazilian units of OAS. Its interests
are likely to be overlooked as OAS tries to hold its business
together, the bondholders contend. They have petitioned a court in
the British Virgin Islands to oversee OAS Finance's affairs.
Meanwhile, a representative of OAS's Brazilian insolvency
proceeding has asked a New York bankruptcy court to recognize the
Brazilian restructuring action as the main forum for the company's
workout. A hearing on that request is scheduled for Tuesday.
Monday evening, officials appointed in OAS Finance's British
Virgin Islands insolvency proceeding said they want to be heard at
Tuesday's session, to make their case for separate treatment for
the unit OAS used to raise money internationally. A lawyer
representing the Brazilian representative in the New York action
couldn't immediately be reached for comment Tuesday.
Both the Brazilian representatives of OAS Group and the British
Virgin Islands-appointed liquidators for OAS Finance have filed
chapter 15 bankruptcy petitions in the New York court. Chapter 15
is a form of bankruptcy designed to shield U.S. assets of
distressed companies while they work out their financial problems
in courts elsewhere.
OAS Finance is a shell company that funneled the proceeds of
bond issues to operating OAS Group units. Investors say they
haven't been able to get answers to questions about restructuring
transactions OAS engaged in after it ran into trouble with
Brazilian authorities concerning the alleged corruption.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Peg Brickley at peg.brickley@wsj.com
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