(Corrects Jan. 28 story to say analyst Karina Freitas is concerned about Petrobras debt levels, not that she is concerned the debt levels may break a bond covenant, paragraphs 10-11)
By Jeb Blount
RIO DE JANEIRO, Jan 28 (Reuters) - Brazilian state-run oil company Petrobras still runs the risk of being declared in default on billions of dollars of debt even after releasing its delayed third-quarter earnings before a self-imposed deadline, a New York-based hedge fund said on Wednesday.
The results, which failed to include an expected charge against earnings related to a corruption scandal, may even add to the number of bond covenants, or legal promises to investors, that have been broken by the company, a senior executive at Aurelius Capital Management said.
In particular, Petrobras' comment in "Note 2" of its unaudited third-quarter results saying that they do not fully meet the International Accounting Standards Board's (IASB) international reporting standards shows non-compliance, said Mark Brodsky, Aurelius' chairman.
The Petrobras note to its results says some of its results are in compliance with the IASB's IAS-34 rule but some, including those related to assets whose value may have been overvalued by corruption, are not.
"Despite its recent assurances, Petrobras remains in default on its New York-law bonds," Brodsky said in a statement sent to Reuters. "Those bonds require Petrobras to issue financial statements that comply with IASB rules, but Note 2 to the new financial statements admits that they do not."
Petrobras did not immediately respond to a request for comment on Aurelius' comments. Aurelius, an investment firm with a focus on distressed assets, asked investors in December to put Petrobras into default as "a precautionary step," according to a Dec. 29 letter.
If investors holding at least 25 percent of a Petrobras bond with this covenant agree with Aurelius, this could lead to a default declaration, raising the risk that Petrobras may have repay $54 billion of bonds governed by New York law before maturity. If one bond is declared in default, all bonds could follow.
The cost of insuring Petrobras' 10-year dollar debt from default through credit default swaps, rose by about 18 basis points on Wednesday to 459.3 points.
Aurelius was a leading member of a group of investors that refused to accept a debt restructuring with Argentina, taking the country to court.
Petrobras' failure to take the scandal-linked writedowns in the quarter is one of several factors that makes it hard to tell how far Petrobras' debt levels have deteriorated, said Karina Freitas, analyst at Concórdia Corretora, a Sao Paulo brokerage.
Bonds sold by Petrobras in 2011 were sold with covenants where Petrobras says it will aim to keep debt within the limits of its five-year strategic plan.
The results, which were supposed to have been released in November, were delayed after auditor PricewaterhouseCoopers declined to certify the company's financial records amid growing allegations of contract-fixing, bribery and political kick-backs.
According to a source with knowledge of the situation, Aurelius is still seeking other investors to declare a default.
Petrobras may also continue in breach of a covenant that acquired the company to provide the third-quarter unaudited results within 90 days of the end of the quarter, a deadline that passed Dec. 29, according to an industry source with direct knowledge of bondholder plans.
Petrobras said in December that it received permission for late reporting on a non-bond loan from a bilateral lender, but declined to detail any wavers from bondholders to miss the 90 day deadline. (Additional reporting by Marta Nogueira; Editing by Guillermo Parra-Bernal in Sao Paulo and Grant McCool)