Oi tentatively agrees to hold restructuring talks in Brazil this week

By Caroline Salls

Pittsburgh, Nov. 6 – Oi SA said in a news release that it tentatively agreed to resume meetings with groups representing bondholders, export credit agencies, facility agents and banks this week in Brazil.

As previously reported, Oi has been in discussions with holders or managers of entities holding the 9¾% senior notes due 2016 issued by Oi; the 5 1/8% senior notes due 2017, 9½% senior notes due 2019 and 5½% senior notes due 2020 issued by Oi and guaranteed by Telemar Norte Leste SA; the 5 5/8% senior notes due 2021 and 5¾% senior notes due 2022 issued by Oi Brasil Holdings Cooperatief UA and guaranteed by Oi; and the 6¼% senior notes due 2016, 4 3/8% notes due 2017, 5 7/8% senior notes due 2018, 5% senior notes due 2019, 4 5/8% senior notes due 2020, 4½% notes due 2025 and 5.242% senior notes due 2017 issued by Portugal Telecom International Finance BV and guaranteed by Oi.

Oi said no agreement on a potential transaction was reached with the groups as of Nov. 6. The company said it has not made a counterproposal to revised restructuring term modifications presented by the groups on Oct. 26.

Issues addressed

According to the release, Oi told the representatives that the groups would need to address some items under an alternative proposal they made in meetings that ran through Oct. 24 in order for their plan to be fully funded and supported by the company.

The items to be addressed included detailing terms of a backstop fee and equity ownership after equitization, addressing the price of a capital increase and allocation of equity among bondholders and existing shareholders and addressing the equity valuation before a new-money capital increase.

In addition, Oi said the proposal needed to address a cash flow shortfall in 2020 by working on considering revisions to the terms of interest payments under the restructured bonds, evaluating financing support by export credit agencies, considering new financing options and revising the amount of new money.

The company said its representatives also shared confidential information with the groups related to projections of judicial deposit amounts in connection with judicial claims.

Oi also shared with the groups that its business plan assumes that the minimum cash balance required to operate in the ordinary course is R$4 billion, but it could be able to operate with as little as R$2 billion to R$3 billion of cash from time to time.

‘Summarily rejected’

In a separate release, the steering committees of the international bondholder committee and the informal group of bondholders said the revised term sheet was “summarily rejected” during negotiations by the vast majority of Oi’s board of directors, even though it was developed specifically to reflect the feedback of the company’s senior management.

The committees said this proves that the board members “are driven by the objective of enhancing the interests of existing shareholders, to the detriment of the best interests of the company and its other stakeholders” and that “a majority of the company’s board of directors is blatantly conflicted.”

In addition, the committee said the board appointed two new executive officers who are also board members, “which constitutes an outrageous violation of corporate governance standards.”

“It is obvious that such new officers were appointed in order to undermine and circumvent the efforts of the Oi group’s senior management to negotiate fair restructuring plan(s) and instead cater to the interests of the company’s minority shareholders exerting control,” the committees said.

Shareholder plan

The board also approved a plan support agreement and term sheet for a “shareholder plan,” according to the committees’ release.

Although the terms of the approved shareholder plan are not yet public, the committees said previously public versions of that plan make clear that it is backed by the minority shareholders exerting control in an attempt to preserve their equity position, and the shareholders who support the plan have thus far refused to be identified.

“The shareholder plan lacks creditor support, is irresponsible and doomed to lead to a costly waste of corporate resources,” the committees said.

The committees also called criticisms of the revised creditor term sheet “unfounded.”

Creditor term sheet

Specifically, the committees said the revised creditor term sheet provides for identical treatment for all bondholders on account of their bond claims and for incremental compensation for those willing to commit capital for an extended period of time.

The committees said the revised creditor terms provide for a fully backstopped capital increase for the Oi group in a total amount of R$4 billion, which would allow the group to properly address all of its projected capital expenditures and other investment needs.

Also, the committees said the revised creditor plan enables existing shareholders to retain 12% of the equity of the reorganized company before dilution for the new money and to participate in the capital increase.

The committees said the revised term sheet allows Oi to elect either a lower cash-payable interest rate or a higher interest rate with a portion of the payment deferred in time.

The committees said Oi’s creditor groups are still planning to meet with senior management and other stakeholders this week to continue discussions.

The steering committees identified their members as Aurelius Capital Management, LP, Canyon Capital Advisors LLC, Citadel Equity Fund Ltd., York Capital Management Global Advisors LLC, Benefit Street Partners LLC, Brookfield Credit Opportunities Master Fund, LP, GoldenTree Asset Management LP and Redwood Master Fund, Ltd.

Oi is a Rio de Janeiro-based telecommunications service provider. It filed for Chapter 15 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on June 21, 2016 under case number 16-11791.

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