Brazilian Telecom Company Oi Wins U.S. Court Protection
July 26 2016 - 5:00PM
Dow Jones News
A U.S. bankruptcy judge agreed to help Brazil's Oi SA fend off
creditors while the telecommunications giant, whose failure spawned
the largest bankruptcy in the country's history, works to
restructure at home.
Judge Sean Lane of the U.S. Bankruptcy Court in New York signed
off on the company's request for chapter 15 protection, which
allows judges to grant the protections of U.S. bankruptcy law to
foreign companies.
Oi says it need those protections, which include the so-called
automatic stay that halts lawsuits and otherwise prevents
interference from creditors, to help it keep its restructuring
efforts focused in Brazil.
Oi says chapter 15 protection will help protect it from
litigation launched by affiliates of hedge fund Aurelius Capital
Management LP and other creditors that may be looking to gain
leverage in its bankruptcy. Oi has been fighting New-York based
Aurelius, which owns bonds issued by Oi subsidiaries, in a legal
battle in the Netherlands over billions of dollars in intercompany
loans that could affect how much the hedge fund recovers on its
investment.
A spokesman for Aurelius declined to comment on Tuesday.
Oi filed for the equivalent of chapter 11 in Brazil in June
after an out-of-court restructuring proposal collapsed. A day
later, the company and several affiliates sought chapter 15
protection in New York, listing about $19 billion in
liabilities.
Oi is Brazil's fourth-largest telecom company, with more than 74
million customers. The company's debt load largely stems from two
mergers, first with Brasil Telecom in 2010 and later with
Portuguese company Portugal Telecom, which ultimately failed to
generate enough business to fund its investment needs.
Bayard Gontijo, Oi's chief executive, resigned June 10 under
pressure from shareholders shaken by a debt-for-equity swap
proposed by the company's creditors. The deal would have
significantly diluted the company's shares, giving a 95% stake of
the restructured business to its bondholders.
Earlier this month, a Brazilian court named audit company
PricewaterhouseCoopers Assessoria Empresarial and law firm
Escritorio de Advocacia Arnoldo Wald as the judicial administrators
to oversee the company during its recovery process.
"The judicial administrators will be responsible for supervising
and assisting in the judicial recovery process of Oi, presenting
individual reports on the development of the company's activities,"
the local court said.
In court papers, Oi has blamed its financial woes on a "perfect
storm of economic strain at the corporate, sector-wide, and
national level." A deep recession in Brazil coupled with corruption
scandals has hurt foreign investment and "generally crippled the
Brazilian capital markets," according to Ojas N. Shah, whom Oi
appointed as its foreign representative in its U.S. bankruptcy
proceedings.
Oi says it was caught off-guard by a rapid shift in demand away
from fixed-line telephone service to the more-profitable mobile
services. Regulations forced it to continue expanding its services
into rural areas even as its revenue fell, court papers show.
Rogerio Jelmayer contributed to this article
Write to Tom Corrigan at tom.corrigan@wsj.com
(END) Dow Jones Newswires
July 26, 2016 16:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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