September 6, 2016 / 1:32 AM / 2 years ago

UPDATE 2-Brazil's Oi debt plan vexes bondholders with 70 pct haircut

(Recasts lead paragraph; adds bond swap info and bondholder reaction to plan from 4th paragraph)

By Ana Mano

SAO PAULO, Sept 5 (Reuters) - Brazil’s largest fixed line carrier Oi SA on Monday unveiled a debt restructuring proposal, offering to sell assets and proposing a debt-for-equity swap option that could mean a 70 percent haircut for bondholders.

Oi filed for protection from creditors on June 20 in the country’s biggest-ever bankruptcy case, involving 65.4 billion reais ($19.3 billion) in bonds, bank debt and operating liabilities.

In a securities filing on Monday, Oi offered four payment options to unsecured creditors such as bondholders owed approximately 34 billion reais. At the same time, the company said it is willing to repay secured creditors such as the Brazil’s BNDES development bank in full over the course of 15 years.

Brazil’s Oi offered to exchange up to 32.3 billion reais ($9.90 billion) in unsecured debt for equity under the plan, which would give lenders up to 85 percent of the company’s capital, according to the filings.

The debt for equity exchange entails issuance of a convertible debt instrument with face value of 10 billion reais, Oi said. Creditors will receive voting capital if the company does not redeem the securities.

“The debt conversion option is by far the worse,” a bondholder told Reuters on condition of anonymity.

In the best case scenario, creditors get paid 31 percent on their debt, plus 4 percent interest under the plan, he added.

“But if the company does not perform well, creditors get 85 percent of the equity which will be worth zero, not to mention liabilities to be assumed as a shareholder,” he said.

Oi refused to comment on the plan beyond the securities filings.

Creditors willing to commit new funding to help the company exit bankruptcy will receive priority in their debt repayment schedule, Oi said. While unsecured creditors will be repaid in 17 years with a seven-year grace period, lenders committing new financing will be repaid in 10 years.

Unsecured lenders may also choose another repayment option, with interest payments of at least 8 percent per year for claims denominated in local currency. Under this option, the principal on the debt will be settled in 14 semi-annual payments beginning in the 11th year, according to the filing.

Brazil’s Oi also proposed converting about 10 billion reais of regulatory fines owed to industry watchdog Anatel into investment commitments. ($1 = 3.2637 Brazilian reais) (Reporting by Ana Mano; Editing by Reese Ewing and Muralikumar Anantharaman)

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