Oi SA, Brazil’s largest fixed-line phone carrier, and six subsidiaries filed for bankruptcy protection on Monday after OI failed to win the support of key shareholders for a plan to restructure 65.4 billion reais ($19.3 billion) of debt.
The petition is Brazil’s largest ever, according to Thomson Reuters data. It follows Oi’s recognition last week that its capital structure was “not sustainable.” Without a debt restructuring, Oi estimated that almost 92 percent of existing cash would be depleted by year-end.
In a securities filing, Oi said the petition to seek protection from creditors in a Rio de Janeiro court stemmed from “obstacles confronted by management to finding a viable alternative with creditors.” Oi will maintain service quality standards during the process and preserve cash, the filing said.
Oi, the byproduct of a state-sponsored merger eight years ago and the only Brazilian carrier controlled by domestic capital, for years spent heavily to cope with mandatory fixed-line expansion goals. That hampered Oi’s ability to compete in the mobile segment and it became the nation’s most indebted carrier.
Concern over a looming bankruptcy plan gained steam on June 10 when Chief Executive Officer Bayard Gontijo quit after a majority of the company’s board balked at the direction of the restructuring talks. Shareholders led by Pharol SGPS SA said Gontijo’s debt-for-equity swap plan with creditors would heavily dilute them, sources said at the time.
“As anticipated, negotiations did not lead to any agreement between the parties, and investors were waiting for Oi’s next move,” said Paolo Gorgó, an Italy-based investor specializing in distressed debt cases.
Newspaper O Estado de S. Paulo reported on Monday that Oi had hired law firm Galdino, Coelho, Mendes Advogados to help draft a possible bankruptcy protection filing.
Nonvoting shares of Oi slumped 10 percent on Monday as the approaching deadlines for debt repayments added to fears that the company could default or seek bankruptcy protection in the middle of the debt restructuring.
A Oi spokeswoman declined to comment on the reported hiring of Galdino as adviser. The law firm did not immediately comment.
The Oi subsidiaries that also filed for bankruptcy protection were Oi Móvel SA, Telemar Norte Leste SA, Copart 4 Participações SA, Copart 5 Participações SA, Portugal Telecom International Finance BV and Oi Brasil Holdings Coöperatief UA.
About 230 million euros ($260 million) in bonds of Portugal Telecom International were set to mature next month. A source with knowledge of the situation said the group of bondholders already negotiating with Oi had not been warned about the company’s intention to seek court protection.