Aurelius rallies some Oi bondholders as bankruptcy battle looms

lunes 25 de julio de 2016 13:29 GYT

By Ana Mano

SAO PAULO, July 25 (Reuters) - Aurelius Capital Management LP has contacted bondholders in Oi SA's Netherlands-based units to challenge the basis of a prior restructuring accord that substantially lowered the recovery value of their bonds, seeking to gain clout in Brazil's biggest-ever bankruptcy reorganization.

New York-based Aurelius, a distressed debt investment firm that owns bonds issued by Oi SA subsidiaries Portugal Telecom International Finance BV and Oi Brasil Holdings Coöperatief UA, began distributing a letter explaining its strategy to fellow bondholders on Friday.

In the letter, Aurelius challenges the notion spread during restructuring talks between Oi and a group of investors advised by Moelis & Co that bonds backed by the Telemar Norte Leste SA unit rank first in repayment order in relation to those sold by Oi Brasil Holdings and Portugal Telecom International.

Aurelius argues that the Netherlands-based subsidiaries had their cash stash sent to Telemar Norte and other Brazil-based units of Oi SA in the form of loans in the three months prior to the latter's bankruptcy protection petition. Assuming that those loans do not enjoy credit support from Oi SA - as the Moelis-led group did during prior talks, is wrong, the letter said.

Both Rio de Janeiro-based Oi and Aurelius declined to comment. In a statement on Monday, the Moelis-led group said the Aurelius letter is based on "incomplete and erroneous information" about Brazilian laws.

The authenticity of the letter was confirmed by a source with direct knowledge of Aurelius' strategy.

The situation draws the battle lines forming ahead of negotiations between Oi, creditors and the court overseeing Brazil's largest-ever bankruptcy, with 65 billion reais ($20 billion) of liabilities. Disagreements among creditors are fanning uncertainty about bond recovery values because of the unsecured nature of most securities.

According to one investor who received the Aurelius letter, before the June 20 bankruptcy filing, Telemar Norte-backed notes traded 10 cents on the dollar wider to non-Telemar notes. The price difference, however, has narrowed by about half in the last two weeks - a sign more bondholders might be buying Aurelius' arguments, the investor said.   Continuación...