Legal Magazine

Telecom Operator Files for Brazil’s Largest Ever Bankruptcy

Posted on the 26 July 2016 by Angelicolaw @AngelicoLaw

Oi SA became the largest telecommunications company in Brazil through a series of mergers and acquisitions. The company now claims another superlative: it has filed the largest bankruptcy in Brazilian history. Oi, Brazil’s largest wireline provider and No. 4 wireless carrier, is seeking protection under Brazilian bankruptcy law as it restructures 65.4 billion reais ($19.3 billion) of debt, Reuters reported.

Oi’s financial struggles have been well documented, and the telecom company had been working to address them ahead of a debt payment due this month. In the end, Oi ran out of time. Talks with creditors ended last month, which led Oi to make the bankruptcy filing. The company has also filed for Chapter 15 bankruptcy protection in the United States to shield itself from U.S. creditors suing the company or foreclosing on its assets there.

In court documents filed in New York, Oi lays the blame for its bankruptcy on Aurelius Capital Management and other hedge funds. Oi’s board of directors rejected a plan by holders of the company’s debt to swap debt for equity, Bloomberg News reported. The Oi board ultimately decided to file for bankruptcy after concluding that it was unlikely the company would be granted additional time to make its next debt payment.

The Oi bankruptcy is hardly an outlier. Last year, bankruptcy filings increased 55 percent, Bloomberg reported, citing data from Serasa Experian. A total of 184 companies filed for bankruptcy in May, a response to the current financial crisis. But even though Oi’s struggles were economic, the telecom carrier was also hurt by the political troubles swirling around the government.

The political crises may have delayed changes to telecom industry regulations that could have helped the company, Reuters explains. Oi had been pursuing a strategy of moving away from its heavily regulated legacy landline services, which bring in less revenue, and instead started to invest in its mobile and data services, which are driving industry and revenue growth. But the company has legal obligations to maintain and even expand its legacy landline network.

The telecom company has a temporary reprieve. A judge granted a 180-day stay of any legal actions while he reviews the case’s merits. Oi’s request for bankruptcy protection in the United States was also approved. In the meantime, parties are expressing interest in buying up all or part of the company. According to Bloomberg, Egyptian billionaire Naguib Sawiris said that he is ready to invest in Oi and could combine the company with Telecom Italia.

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