May 23, 2017 / 10:43 PM / a year ago

Brazil Oi creditors file U.S. motion as bankruptcy negotiations continue

SAO PAULO, May 23 (Reuters) - Creditors of Brazil’s Oi SA filed a motion this week in U.S. bankruptcy court to pressure the telephone operator to consider a proposal which could give lenders control of the restructured company, a source close to the lenders said.

The creditors believe that a U.S. filing made on Monday in the Southern District of New York will allow them the right to reject the company’s reorganization plan in the United States if it is confirmed in Brazil without their input, the source said.

“If the company successfully approves the plan, it will need to have it enforced outside of Brazil,” said the source.

Oi said it has no knowledge of the creditors’ motion.

Although Oi has no sizeable assets in the United States, it has strategic commercial agreements with large U.S. telecom carriers related to interconnection fees, the source said.

“If the plan is not enforced in the U.S., the creditors could seek judgments to attach moneys that would otherwise go to Oi or go to other carriers paid by Oi,” the source said.

Oi filed for Brazil’s largest ever bankruptcy protection almost a year ago to restructure 65 billion reais ($19 billion) of debts. It has sought creditor protection in other jurisdictions including a Chapter 15 filing in the United States as it has contractual arrangements and cash flows outside of the Latin American country.

Oi has proposed giving financial creditors 25 percent of its equity or convertible bonds callable in three years, at which point they could own up to 38 percent of the company’s shares. However, the creditor group has put forward a rival plan which would involve a capital injection and hand them control of the ailing carrier through a debt-for-equity swap giving them a 95 percent stake, according to a plan unveiled in December.

The company’s plan would more than halve its total financial debt to about 21 billion reais ($6.4 billion) but would impose deep discounts on the company’s bondholders.

The creditor group, led by financial adviser Moelis & Co and backed by Egyptian billionaire Naguib Sawiris, has proposed injecting $1.25 billion into Oi.

A potential objection to Oi’s reorganization plan in the United States may only occur after it has been approved in Rio de Janeiro, where the company is headquartered.

Any hearings in the United States would be unlikely before September, said the source. ($1 = 3.2637 reais) (Reporting by Ana Mano and Alerto Alerigi; Editing by Lisa Shumaker)

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