Oi SA filed for bankruptcy protection on 65 billion reais
($19 billion) in debt -- a Brazilian record -- after failing to reach an
agreement with creditors, the last straw following a series of mergers and
leadership changes that failed to help the phone company get on solid financial
footing.
Brazil’s fourth-biggest wireless company sought protection
from creditors so it could keep serving customers, the company said in a filing
Monday. Talks with creditors had stalled last week after some board members
disagreed with a plan by bondholders to swap debt for equity, giving them 95
percent of the company and leaving current shareholders with a 5 percent stake.
The filing is likely to have major repercussions in Brazil,
since state-owned banks Banco Nacional de Desenvolvimento Economico e Social,
Caixa Economica Federal and Banco do Brasil SA are among Oi’s top creditors,
along with private banks such as Itau Unibanco Holding SA. Oi’s move is also set
to trigger payments on a total of $14 billion in derivatives contracts designed
to protect debt investors against a default, according to data compiled by
Bloomberg.
Oi has about $1 billion in net outstanding credit default
swaps, the data show. Typically that is the maximum that could be paid out,
after accounting for offsetting trades.
Oi’s board decided to move ahead with the filing after
determining that the company was unlikely to get approval from shareholders and
debtholders for a voluntary exchange offer in time to make the next debt
payment, according to two people familiar with the matter.
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