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Bondholders reject Oi's latest plan

Por: Latin LawyerImprimirVisualizar em PDF

Confidential settlement negations between the management of Brazilian telecoms company Oi and major creditor groups have come to an end without a deal, as bondholders rejected a plan support agreement approved by the company's board that must now be presented to Brazil's telecoms regulator.

Oi announced on 6 November that a set of confidentiality agreements entered into with the steering committees of its International Bondholders Committee and Ad Hoc Group of Bondholders in October, with a view to reaching consensus on a restructuring and capital increase, had been terminated.

The terminations follow multiple meetings throughout the latter half of October between Oi, the two steering committees, and a group of export credit agencies, facility agents and banks represented by FTI Consulting, seeking to reach a settlement of the company's judicial reorganisation proceedings that have been pending since July 2016.

With a repeatedly postponed creditors' vote on the company's plan now scheduled for 10 November, it appears the two sides are no closer to a resolution.

The creditor groups, which have claims of around 22 billion reais (US$6.7 billion) against the telecoms provider, have long maintained that Oi minority shareholders are using the company's restructuring plan to bolster their interests to the detriment of the group and other stakeholders. They offered their own, joint alternative plan back in August.

On 26 October, the same creditors provided a revised term sheet amending parts of that alternative plan; in response, they said, to feedback from Oi's senior management. One of the arguments they put forward was that the alternative plan and term sheet would likely get approval in the Netherlands and the US, where parallel insolvency proceedings for two Oi subsidiaries, and a Chapter 15 action, are pending respectively.

But in a strongly worded 6 November press release, the three groups stated that Oi's board of directors had "summarily rejected" the term sheet in the middle of negotiations and appointed two new executive officers from among the board, neglecting their fiduciary duties in an "outrageous violation of corporate governance standards".

"This confirms yet again that a majority of the company's board is blatantly conflicted," the press release notes.

"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 creditor groups add.

A few days earlier, on 3 November, Oi's board had released a statement describing the creditors' term sheet as "impossible to accept" because it was not a firm and binding proposal and did not offer balanced treatment of the different stakeholders. The board also claimed the term sheet wrongly preserved the creditors' rights to continue litigating against Oi and "presupposes" a change in Brazil's regulatory regime for its implementation, which could cause "delay and uncertainty".

The creditors have rejected all of these criticisms as "misleading" and "misplaced".

After rejecting the term sheet, on the same day, Oi's board approved by majority vote a draft plan support agreement that modifies its restructuring proposal pending before the 7th Corporate Court of the State of Rio de Janeiro.

Brazil's telecoms regulator Anatel, a creditor of Oi to the tune of billions of reais owed in regulatory fines, on Monday demanded to see the draft plan support agreement within 24 hours. Anatel has told Oi it will refrain from accepting the agreement until its directors' council has examined it to make sure it preserves the group's autonomy of governance and doesn't include "ruinous" clauses.

The watchdog also ordered Oi to notify Brazil's competition authority, CADE, of future board meetings so that it can send a representative to attend, and asked for access to the group's accounting, legal and financial operating documents. Anatel says it needs access to these documents so it can inform its director's council of "any acts or facts" relating to the maintenance of Oi's telecoms concessions, or to the fiduciary duties and powers of its board.

Reuters cited an Oi securities filing on 6 November in which the company is understood to have revealed it would pay bondholders annual fees in exchange for them injecting capital into the group. The newswire says the company's latest plan envisages a minimum capital injection of 7.1 billion reais (US$2.2 billion), of which just under half would come from new cash finance and the rest from a debt-for-equity swap.

The plan would result in a "huge haircut" for many bondholders, Reuters states.

Absent further delays to the creditors' vote, on 10 November, creditors will be casting ballots to decide, among other things, whether Oi can restructure seven of its companies – including two Dutch entities – as one single, consolidated group.

A pair of court rulings in September ordered Oi to provide separate lists of creditors and assets for each of the seven debtors and clarified that the creditors of each entity should vote on the consolidation question separately. The rulings followed appeals by the two Dutch debtors – Portugal Telecom International Finance and Oi Brasil Coöperatief (Coöp) – who are also in insolvency proceedings in Amsterdam, and who are creditors of the entire group in the Rio judicial reorganisation proceedings.

Coöp has argued from the start that it does not belong in the Brazilian proceedings as a debtor, since the Dutch Supreme Court has found its centre of main interests (COMI) to be in the Netherlands. The company's Dutch bankruptcy trustee, Jasper Berkenbosch of Jones Day in Amsterdam, in particular, has argued that the plan pending before the Rio court ignores the Dutch insolvency process, Dutch law and Coöp's own claims against other Oi entities.

Berkenbosch has presented his claims before the US Bankruptcy Court for the Southern District of New York, where he has been seeking to overturn the court's recognition of the Brazilian judicial reorganisation process as Coöp's foreign main proceedings, granted in July 2016, and have its Dutch insolvency proceedings recognised as the main proceedings instead.

A hearing took place on 25 September and both sides submitted proposed findings of fact and law in early October – Berkenbosh on the one hand, and Antonio Reinaldo Rabelo, Oi's legal director and recognised foreign representative on the other. But Judge Sean Lane in the US bankruptcy court has yet to issue an opinion.

João Vicente Carvalho of E.Munhoz Advogados, Brazilian counsel to PTIF and Coöp's Dutch bankruptcy trustees, told a month ago that a decision from the US bankruptcy court would likely come before the creditors' vote.

In the 7th Corporate Court of the Capital of the State of Rio de Janeiro

Judge Fernando Viana


Counsel to Oi

BMA - Barbosa, Müssnich, Aragão

Partners Luiz Antonio Sampaio de Campos, Sergio Savi and Felipe Evaristo dos Santos Galea in Rio de Janeiro


Rosman Penalva Souza Leao Franco Avogados 

Partners Paulo Penalva Santos and Luiz Aberto Clonna Rosman in Rio de Janeiro


Basilio Advogados

Partner Ana Tereza Basilio in Rio de Janeiro


White & Case LLP

Partner Richard Kebrdle in Miami


Counsel to Jasper Berkenbosch as bankruptcy trustee of Coöp

E.Munhoz Advogados

Partner Eduardo Munhoz and associates Joäo Vincente Carvalho, Carolina Iwamoto, Ana Luiza Arguelloand and Ana Elisa Laquimia


Jones Day

Partners Corinne Ball in New York and Louis Fischer in Washington, DC


Counsel for the International Bondholders' Committee

Sergio Bermudes Advogados

Marcelo Carpenter and Luis Tomas Alves de Andrade


Partner Allan Brilliant in New York

Counsel to the Ad Hoc Group of bondholders


Pinheiro Neto Advogados

Partner Guiliano Colombo in São Paulo


Cleary Gottlieb Steen & Hamilton LLP

Partners Richard Cooper and Luke Barefoot in New York


Counsel to Bratel (Pharol)

Souza, Cescon, Barrieu & Flesch Advogados

Partners Maria Cristina Cescon, Fábio Rosas and Tiago Lopes, with associates Guilherme França, Fernanda Montorfano, Thenard Figueiredo and Juliana Vasquez


Andrade Fichtner Advogados

Partners Jose Antonio Fichtner, Sergio Nelson Mannheimer and Julio Rebello Horta, with associates Marcelo Dickstein and Eduardo Cardoso in Rio de Janeiro


Counsel to Societe Mondiale Fundo

Galdino, Coelho, Mendes, Advogados

Partners Joao Mendes, Rafael Pimenta and Lia Stephanie Saldanha Pompili in Rio de Janeiro


In the US Bankruptcy Court for the Southern District of New York

Judge Sean Lane


Coöp's bankruptcy trustee

Jones Day

Partner Jasper Berkenbosch in Amsterdam


Counsel to Coöp's bankruptcy trustee

Jones Day

Partners Corinne Ball and Stephen Pearson, with associates Brian Kotliar and Anna Kordas in New York


Counsel to Oi

White & Case LLP

Partner John Cunningham and associate Mark Franke in New York, partners Richard Kebrdle,Jason Zakia, and associate Laura Femino in Miami


Attorneys for the steering committee of the ad hoc group of bondholders

Cleary Gottlieb Steen & Hamilton LLP

Partners Richard Cooper and Luke Barefoot in New York


Counsel to the international bondholder committee


Partners Allan Brilliant and Benjamin Rosenberg in New York


Counsel to export credit agencies

Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados

Partners Alex Hatanaka and Marcelo Ricupero, and associate Liv Machado in São Paulo


Milbank, Tweed, Hadley & McCloy LLP

Partner Nicholas Angel in London


FTI Consulting

In the Amsterdam District Court


Court-appointed insolvency trustee to Oi Brasil Holdings Coöperatief

Jones Day

Partner Jasper Berkenbosch in Amsterdam


Court-appointed insolvency trustee to Portugal Telecom International Finance

CMS Cameron McKenna LLP

Partner Marcel Groenewegen in Amsterdam

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