December 22, 2016 / 10:10 PM / 2 years ago

CORRECTED-Oi bondholders may get warrants in Sawiris-backed plan

(Corrects 4th paragraph to say Moelis represents bondholders owning about 20 pct not 10 pct of total Oi debt)

By Ana Mano

SAO PAULO, Dec 22 (Reuters) - Creditors and Egyptian billionaire Naguib Sawiris have proposed issuing warrants as part of an alternative restructuring plan for Brazilian phone carrier Oi SA, a move that would give certain bondholders better returns on investment.

The warrants would give creditors the right to purchase a number of shares equivalent to 5 percent of the firm’s total equity capital after a planned capital injection, according to a term sheet dated Dec. 16 seen by Reuters.

The exercise date on the warrants would be after January 2018 and only investors owning bonds secured by Telemar Norte Leste SA, one of the seven Oi units which filed for creditor protection in Brazil, would be eligible.

Oi bondholders represented by Moelis & Co, which own about 20 percent of the company’s total outstanding debt, unveiled the plan last week to rescue the debt-laden carrier. Under the proposal, the bond holder group would consider the warrants and a $1.25 billion equity offering.

This group, backed by strategic investor Orascom TMT Investments SARL, a firm owned by Sawiris, have committed to underwriting the entire new offering if no other investors step forward. In exchange, the new money providers would be entitled to a 7.5 percent backstop fee.

Oi, Moelis and majority shareholders in the company declined comment for this report. Karim Nasr, the executive representing Sawiris, was not immediately available for comment.

The proposal comes weeks after a dissident group of Oi creditors, who until mid-November had been negotiating with Moelis as advisors, organized and retained São Paulo-based G5 Evercore in an effort to maximize recoveries for bondholders without Telemar guarantees.

A source close to Moelis said the warrants structure was the “least traumatic” option for the creditors within this group, which is also comprised of non-Telemar bondholders. But the source agreed that if Oi meets certain performance targets, the Moelis proposal would give the Telemar bondholders an additional four basis points of recovery.

The Moelis plan underscores efforts by certain Oi creditors to double bondholder recoveries to about 40-45 cents on the U.S. dollar from some 18-20 cents under Oi’s original reorganization plan, presented on Sept 5.

However, the proposed warrants re-ignite inter-creditor tensions because guarantees provided by a company in bankruptcy “are worth zero,” said an investor referring to Telemar. He added the backstop fee is “unusual.”

The Moelis plan, which has yet to be negotiated with Oi, entails an immediate debt-for-equity swap whereby creditors would convert 24.82 billion reais ($7.54 billion) worth of bond debt into a 95 percent stake before the new equity offering. ($1 = 3.2920 Brazilian reais) (Reporting by Ana Mano; Editing by Andrew Hay)

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