July 19, 2018 / 6:03 AM / in 5 months

Exclusive: Investment firms fight to inject cash in Brazil carrier Oi

SAO PAULO (Reuters) - Three distressed asset funds have sued for the right to participate in a 4 billion reais ($1 billion) capital increase for Brazilian telecom Oi SA as part of its in-court restructuring, four sources with knowledge of the matter told Reuters this week.

The logo of Brazilian telecoms company Oi SA is pictured inside a store in Sao Paulo, Brazil July 18, 2018. REUTERS/Paulo Whitaker

The fight for the chance to invest in Oi, Brazil’s largest fixed line carrier, reveals a sharp turnaround in investors’ perception of a company that flirted with liquidation a year ago. Brazil’s consumer-led economic recovery and bets on industry consolidation have boosted interest in the company after three years of battles between shareholders and creditors.

A bankruptcy court judge responded to the lawsuits by authorizing participation in the capital injection for two of the funds, which were not party to the recovery plan approved by 16 investment firms at a December creditors meeting.

Marble Ridge Capital LP and Burlington Loan Management DAC, an investment vehicle managed by U.S. distressed debt hedge fund Davidson Kempner Capital Management LLC, were cleared to take part in the operation.

U.S.-based Silver Point Capital LP had its first request denied by Rio de Janeiro judge Fernando Viana, because it sought a higher share of the capital increase than corresponded to the Oi debt in its possession before the creditors’ meeting. It was unclear whether Silver Point was continuing its efforts in court.

Oi, Marble Ridge, Davidson Kempner and Silver Point all declined to comment on the previously unreported bankruptcy court filings and rulings.

Funds participating in the capital increase, which the company hopes to carry out by year-end, will receive a bonus of 8 to 10 percent of the amount they invest, either in cash or additional shares.

Oi collapsed under 65 billion reais of debt in 2016, kicking off Latin America’s largest-ever bankruptcy protection proceedings. The contentious restructuring had U.S. and UK distressed debt hedge funds squaring off in courts on three continents.

A pivotal decision last December allowed most of the debt to be converted into equity, marking a rare bondholder win in Brazil’s slow-moving bankruptcy courts.

FUNDS JOCKEY FOR EQUITY

The debt-for-equity swap, scheduled for Friday, will convert tens of billions of reais in debt into an equity stake of about 70 percent of the reorganized company.

In a subsequent phase of the recovery plan, the new shareholders will inject an additional $1 billion into the company, further slashing its debt ratios.

The three largest shareholders after those two operations will be hedge funds GoldenTree Asset Management LP, York Capital Management Global Advisors LLC and Solus Alternative Asset Management LP, with a combined 28 percent stake in the company, according to the sources.

The sources requested anonymity because of the sensitivity of the negotiations.

Three other funds — Canyon Capital Advisors LLC, a vehicle managed by Canada’s Brookfield Asset Management LLC and another run by Davidson Kempner Capital Management — will hold a combined 15 percent, the sources added.

GoldenTree did not respond to a request for comment on the stakes the firms will hold. The other funds declined to comment.

Next week, after the debt-for-equity swap is completed, the funds will set a date for a new shareholders’ meeting to approve the capital increase and issue a list of 11 new board members.

The logo of Brazilian telecoms company Oi SA is pictured inside a store in Sao Paulo, Brazil July 18, 2018. REUTERS/Paulo Whitaker

People close to some of the funds believe the carrier has significant upside, despite corporate governance questions and a stalled effort to reform old telecom regulations.

Still, the company has its detractors. Over the last two years, while Oi has been stuck in bankruptcy protection proceedings, competitors such as the local units of Telecom Italia SpA and Telefonica SA have gotten significant head starts in updating their mobile and broadband networks.

($1 = 3.87 reais)

Reporting by Carolina Mandl, Tatiana Bautzer and Gram Slattery; Editing by Brad Haynes and Richard Chang

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