Brazilian Telecom Company Oi Wins U.S. Court Protection

A U.S. bankruptcy judge agreed to help Brazil's Oi SA fend off creditors while the telecommunications giant, whose failure spawned the largest bankruptcy in the country's history, works to restructure at home.

Judge Sean Lane of the U.S. Bankruptcy Court in New York signed off on the company's request for chapter 15 protection, which allows judges to grant the protections of U.S. bankruptcy law to foreign companies.

Oi says it need those protections, which include the so-called automatic stay that halts lawsuits and otherwise prevents interference from creditors, to help it keep its restructuring efforts focused in Brazil.

Oi says chapter 15 protection will help protect it from litigation launched by affiliates of hedge fund Aurelius Capital Management LP and other creditors that may be looking to gain leverage in its bankruptcy. Oi has been fighting New-York based Aurelius, which owns bonds issued by Oi subsidiaries, in a legal battle in the Netherlands over billions of dollars in intercompany loans that could affect how much the hedge fund recovers on its investment.

A spokesman for Aurelius declined to comment on Tuesday.

Oi filed for the equivalent of chapter 11 in Brazil in June after an out-of-court restructuring proposal collapsed. A day later, the company and several affiliates sought chapter 15 protection in New York, listing about $19 billion in liabilities.

Oi is Brazil's fourth-largest telecom company, with more than 74 million customers. The company's debt load largely stems from two mergers, first with Brasil Telecom in 2010 and later with Portuguese company Portugal Telecom, which ultimately failed to generate enough business to fund its investment needs.

Bayard Gontijo, Oi's chief executive, resigned June 10 under pressure from shareholders shaken by a debt-for-equity swap proposed by the company's creditors. The deal would have significantly diluted the company's shares, giving a 95% stake of the restructured business to its bondholders.

Earlier this month, a Brazilian court named audit company PricewaterhouseCoopers Assessoria Empresarial and law firm Escritorio de Advocacia Arnoldo Wald as the judicial administrators to oversee the company during its recovery process.

"The judicial administrators will be responsible for supervising and assisting in the judicial recovery process of Oi, presenting individual reports on the development of the company's activities," the local court said.

In court papers, Oi has blamed its financial woes on a "perfect storm of economic strain at the corporate, sector-wide, and national level." A deep recession in Brazil coupled with corruption scandals has hurt foreign investment and "generally crippled the Brazilian capital markets," according to Ojas N. Shah, whom Oi appointed as its foreign representative in its U.S. bankruptcy proceedings.

Oi says it was caught off-guard by a rapid shift in demand away from fixed-line telephone service to the more-profitable mobile services. Regulations forced it to continue expanding its services into rural areas even as its revenue fell, court papers show.

Rogerio Jelmayer contributed to this article

Write to Tom Corrigan at [e-mail]

(END) Dow Jones Newswires

July 26, 2016 16:45 ET (20:45 GMT)

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