December 2, 2016 / 7:47 PM / 2 years ago

UPDATE 1-Brazil's Oi hints at outright debt-stock swap, sources say

(Adds comments, background, Cerberus moves)

By Guillermo Parra-Bernal and Tatiana Bautzer

SAO PAULO, Dec 2 (Reuters) - Oi SA could scrap a proposed three-year restriction on creditors swapping part of their debt for equity, in a sign that Brazil’s No. 4 wireless carrier wants to lure bondholder support to exit bankruptcy protection faster, two people with knowledge of the matter said on Friday.

The limit, which Oi included in a reorganization proposal on Sept. 5, drew creditor anger and helped slow the carrier’s in-court restructuring. Chief Executive Officer Marco Schroeder told Oi’s two bondholder groups this week that shareholders now seem less reluctant to accept a debt-for-equity swap, the people said.

According to the sources, Schroeder met on Monday with São Paulo-based G5 Evercore, the advisor to a recently created bondholder group, to discuss the restructuring. He met bankers at a Moelis & Co-led creditor group on Friday, said the people, who spoke on condition of anonymity.

That change in strategy would underscore how mounting government pressure to find a solution for Oi has forced creditors and shareholders to rapidly find common ground. Schroeder became Oi’s CEO after a first round of talks with the Moelis-led group collapsed in June.

Rio de Janeiro-based Oi declined to comment, as did Moelis. Efforts to obtain comments from G5 Evercore were unsuccessful.

Oi’s 65.4 billion-real ($19 billion) bankruptcy protection case, Brazil’s biggest ever, has been complicated by September’s reorganization proposal, which creditors alleged favors shareholders at their expense. The government may intervene if the rift persists.

Reuters reported on Sept. 2 that the government would only act if “disruptive investors” sought to take control of Oi during the in-court reorganization plan.

The Moelis-led group is working with Egyptian billionaire Naguib Sawiris to present an alternative reorganization plan for Oi, drawing opposition from some government officials.

A resolution of the conflict between bondholders and shareholders could draw more interested parties to Oi, which filed for creditor protection after succumbing to years of excessive borrowing and Brazil’s harshest recession in eight decades.

A third source said that a group of investors led by U.S. distressed debt fund Cerberus Capital Management LP is considering examining Oi’s books to decide whether to place a bid during the reorganization talks.

The same person said the Cerberus-led plan had already garnered support from government officials and banks. New York-based Cerberus did not have an immediate comment.

$1 = 3.4660 reais Additional reporting by Ana Mano in São Paulo; Editing by Paul Simao

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