(Corrects 4th paragraph to say Moelis represents bondholders
owning about 20 pct not 10 pct of total Oi debt)
By Ana Mano
SAO PAULO Dec 22 Creditors and Egyptian
billionaire Naguib Sawiris have proposed issuing warrants as
part of an alternative restructuring plan for Brazilian phone
carrier Oi SA, a move that would give certain
bondholders better returns on investment.
The warrants would give creditors the right to purchase a
number of shares equivalent to 5 percent of the firm's total
equity capital after a planned capital injection, according to a
term sheet dated Dec. 16 seen by Reuters.
The exercise date on the warrants would be after January
2018 and only investors owning bonds secured by Telemar Norte
Leste SA, one of the seven Oi units which filed for creditor
protection in Brazil, would be eligible.
Oi bondholders represented by Moelis & Co, which own
about 20 percent of the company's total outstanding debt,
unveiled the plan last week to rescue the debt-laden carrier.
Under the proposal, the bond holder group would consider the
warrants and a $1.25 billion equity offering.
This group, backed by strategic investor Orascom TMT
Investments SARL, a firm owned by Sawiris, have committed to
underwriting the entire new offering if no other investors step
forward. In exchange, the new money providers would be entitled
to a 7.5 percent backstop fee.
Oi, Moelis and majority shareholders in the company declined
comment for this report. Karim Nasr, the executive representing
Sawiris, was not immediately available for comment.
The proposal comes weeks after a dissident group of Oi
creditors, who until mid-November had been negotiating with
Moelis as advisors, organized and retained São Paulo-based G5
Evercore in an effort to maximize recoveries for bondholders
without Telemar guarantees.
A source close to Moelis said the warrants structure was the
"least traumatic" option for the creditors within this group,
which is also comprised of non-Telemar bondholders. But the
source agreed that if Oi meets certain performance targets, the
Moelis proposal would give the Telemar bondholders an additional
four basis points of recovery.
The Moelis plan underscores efforts by certain Oi creditors
to double bondholder recoveries to about 40-45 cents on the U.S.
dollar from some 18-20 cents under Oi's original reorganization
plan, presented on Sept 5.
However, the proposed warrants re-ignite inter-creditor
tensions because guarantees provided by a company in bankruptcy
"are worth zero," said an investor referring to Telemar. He
added the backstop fee is "unusual."
The Moelis plan, which has yet to be negotiated with Oi,
entails an immediate debt-for-equity swap whereby creditors
would convert 24.82 billion reais ($7.54 billion) worth of bond
debt into a 95 percent stake before the new equity offering.
($1 = 3.2920 Brazilian reais)
(Reporting by Ana Mano; Editing by Andrew Hay)