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Brazil's Second Largest Oil Company On Verge Of Latin America's Biggest Corporate Bankruptcy Filing

Tyler Durden's picture




 

When on October 1, fallen billionaire Eike Batista's OGX Petroleo & Gas, missed a $45 million bond coupon payment, some were surprised but most  had seen the writing on the wall. After all, Brazil's second largest oil company after Petrobras, and the crowning jewel of Batista's EBX Group, had been under the microscope of investors and certainly creditors (and if it wasn't it certainly should have been) after oil deposits that Batista had valued at $1 trillion turned out to be commercial failures. And so the countdown to the inevitable bankruptcy filing began. Overnight, Bloomberg reports that the wait should not be long (in fact it may coincide with the default of that other insolvent mega-creditor: the United States), and will mostly certainly take place before the end of the month, following the retention of bankruptcy specialist law firm Quinn Emanuel.

From Bloomberg:

Quinn Emanuel was hired to work on restructuring and potential litigation matters in the U.S. for Batista, said the people, who asked not to be named because they weren’t authorized to speak publicly.

 

OGX Petroleo & Gas Participacoes SA (OGXP3) is considering filing for bankruptcy protection by the end of this month, two people with direct knowledge of the matter said last week. The filing would be done in Rio de Janeiro where OGX is based, said the people, asking not to be identified as discussions are private. While Batista is negotiating with creditors to avoid the same process for shipbuilder OSX Brasil SA (OSXB3), the most likely outcome is that both companies will seek legal protection, they said.

Prior stakeholder representations by Quinn Emmanuel have been the bankruptcies of energy trader Enron Corp., futures trader Refco Inc. and oil-trader SemGroup LP, according to the firm’s website, so they are quite proficient at representing what is about to be Latin America's largest energy-related bankruptcy in a long time.

And while it is unclear if the company will file concurrently in the US under Chapter 15, Batista's creditors, awoken from their "all is well" slumber and scrambling, have decided to pull an Elliott management, and take possession of at least two ships used as collateral by another Batista company, shipbuilder OSX and sister company to OGX, whose assets may also be impaired as unknown cross-default provisions are triggered and a vicious intercreditor fight ensues.

Bloomberg reports that OSX Brasil bank creditors considering taking possession of 2 vessels used as collateral on loans to Batista’s shipbuilder, say 6 people with knowledge. The banks are talking to advisers and company officials to see if they should execute guarantees if OSX’s oil sister co. goes into  default, which would trigger cross-default clauses on OSX. Bloomberg adds that OSX already hired Credit Suisse to help sell OSX-1, OSX-2 platforms that guarantee loans.

One question is what the waterfall effects on local banks would be in the case of a bankruptcy filing, due to massive exposure to the company by both local and foreign financial firms - case in point OSX borrowed $1.27 billion from banks including Santander, DVB and others.  Naturally officials at neither DVB nor Santander commented.

Either way, the seemingly endless period of financial stability in Latin America, and particularly Brazil (where record consumer debt is a far greater issue), long seen as a derivative of China, is ending. Luckily, the next steps in the global overlevered soap opera are about to be unveiled. So sit back, grab the popcorn and watch as the world receives yet another Donald Trump, i.e., fallen billionaire angel, this time in Latin America, and all the associated entertainment, even if it is not quite as entertaining for the thousands of Brazilians who are about to lose their jobs as the debt tsunami finally rolls over.

 

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Wed, 10/09/2013 - 08:57 | 4037511 Doña K
Doña K's picture

Trust is gone everywhere.

Wed, 10/09/2013 - 09:08 | 4037539 SafelyGraze
SafelyGraze's picture

subordinated bondholders, bitchez!

Wed, 10/09/2013 - 09:08 | 4037542 pods
pods's picture

I'm thinking this is bullish for the S&Pee.

pods

Wed, 10/09/2013 - 13:44 | 4038513 Scarlett
Scarlett's picture

LOLOLOL @ this Eike moron

Wed, 10/09/2013 - 09:11 | 4037546 MillionDollarBonus_
MillionDollarBonus_'s picture

Oil company bankruptcies are the early signs of the emerging green economy. With the rise of highly competitive green technologies and green energy programs, oil is fast becoming obsolete. Peak oilers who have invested money in oil companies are in for a rude awakening as the green revolution starts to eat the outdated fossil fuel industry alive. 

http://accredited-times.com/2013/10/08/why-unions-are-the-champions-of-american-freedom/ 

Wed, 10/09/2013 - 09:18 | 4037569 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Highly competitive green technologies?? ROFL.

Wed, 10/09/2013 - 09:49 | 4037644 Say What Again
Say What Again's picture

Only in Brazil can an oil company go broke.  Oh well, at least they have nice bikinis to keep you distracted from the fact that you're losing money.

Wed, 10/09/2013 - 11:13 | 4037878 Downtoolong
Downtoolong's picture

I think I’d still prefer shares of Batista's OGX Petroleo & Gas as collateral over shares of MDB’s future bonus, particularly if MDB's bonus is based on his investment calls.

Wed, 10/09/2013 - 09:20 | 4037574 NoDebt
NoDebt's picture

"Oil company bankruptcies are the early signs of the emerging green economy. "

Thats some top-shelf stuff right there.  I almost sprayed coffee.

I think you mighta got your groove back.

Wed, 10/09/2013 - 09:21 | 4037579 Devotional
Devotional's picture

I know have milk coming out of my nostrils damn it!!!

Wed, 10/09/2013 - 11:43 | 4038000 Jumbotron
Jumbotron's picture

I thought there was SOOOOOOO much oil in and around Brazil.....not to mention all that sugar cane and other biomass for clean, green fuel.

Wasn't Brazil the first letter in the BRIC miracle nations ???

Oil sinks......but bullshit floats.

Wed, 10/09/2013 - 10:52 | 4037832 DR
DR's picture

You should never invest on the basis of "trust".

Wed, 10/09/2013 - 13:46 | 4038521 Scarlett
Scarlett's picture

That's a great observation; & for today more than ever.

Wed, 10/09/2013 - 09:01 | 4037514 GMadScientist
GMadScientist's picture

Let the game of musical chairs begin!

(where's Jim O'Neill? time to punch that stupid fuck in his face)

Wed, 10/09/2013 - 09:04 | 4037526 Doña K
Doña K's picture

Can this be the beginning of the great unravel? One Quadrillion derivatives disappearing at the speed of light!

Wed, 10/09/2013 - 09:14 | 4037553 GMadScientist
GMadScientist's picture

No, just the prelude to a season of "Pucker Factor"(tm), the newest reality TV show.

Maybe just a regular swan doused in sweet crude.

Wed, 10/09/2013 - 09:06 | 4037533 Notarocketscientist
Notarocketscientist's picture

You can find that stupid fuck over on the Daily Telegraph writing a semi-regular column.

He can shove his BRICS up his ass sideways

Wed, 10/09/2013 - 09:13 | 4037556 GMadScientist
GMadScientist's picture

The usual Squid hazing ritual then.

Wed, 10/09/2013 - 09:00 | 4037519 Winston Churchill
Winston Churchill's picture

wasn't Obozo pushing this company and funding it with our taxpayer dollars ?

If so,Obozo is the kiss of death to all he touches.Maybe he and Stolper should get together.

Wed, 10/09/2013 - 09:02 | 4037524 dontgoforit
dontgoforit's picture

He's sure 'kissing' us to death.  Or is that, eff'n us to death?  Gawd, I can't wait until the 2016 elections to flush this turd.

Wed, 10/09/2013 - 09:08 | 4037537 negative rates
negative rates's picture

That is becoming habit among voters these past few decades. Simply enter a new and better royal flush.

Wed, 10/09/2013 - 09:12 | 4037545 29.5 hours
29.5 hours's picture

 

"can't wait until 2016...to flush this turd"

In 2016 you will be given the choice between 2 turds, the same choice you had in 2012 and 2008 and 2004...

 

Wed, 10/09/2013 - 10:33 | 4037780 PT
PT's picture

... and what makes you think that will change anything from the last five years or stop any more damage happening for the next 3 years?

Wed, 10/09/2013 - 10:38 | 4037792 PT
PT's picture

Australians will understand this one:  "Gee, that guy got voted out.  I guess we'd better not try and introduce a GST then."

.

.

.

P.S. to the rest of the world:  That is not how it works. 

Wed, 10/09/2013 - 10:39 | 4037803 PT
PT's picture

Our state newspaper did not say this but it may as well have:  "Who cares about your flimsy referendum when we have rock solid proof from our news poll?"

Wed, 10/09/2013 - 09:03 | 4037521 dontgoforit
dontgoforit's picture

This must be the one obama put $2 billion of our money in.  Solyndra deux.  MF'ing moron.  And he's the prez - go figure.

Wed, 10/09/2013 - 14:36 | 4038673 mkhs
mkhs's picture

 "As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart's desire at last and the White House will be adorned by a downright moron."

— H. L. Mencken     We are there?
Wed, 10/09/2013 - 09:02 | 4037523 Devotional
Devotional's picture

theft and corruption - that is the new norm (cough cough "Market Forces")

Wed, 10/09/2013 - 09:16 | 4037559 vxpatel
vxpatel's picture

This is not the 'new norm', it has been going on since we put our collective faith in an 'invisible hand' to allocate money, labor and natural resources...

Wed, 10/09/2013 - 10:07 | 4037692 shovelhead
shovelhead's picture

You had faith in .Gov.s 'invisible hand'?

You must have a red tipped cane.

Wed, 10/09/2013 - 11:20 | 4037904 vxpatel
vxpatel's picture

you think there are only 2 options? Expand your horizons.

Wed, 10/09/2013 - 09:05 | 4037527 Bangin7GramRocks
Bangin7GramRocks's picture

The Brazillian government should do a one-time liquidity infusion into this important industry. In the less than 3 months, billions in bonuses will be due. It is the only patriotic thing to do. Hey, it "worked" in the USA. Bankruptcy is only for the low classes.

Wed, 10/09/2013 - 09:06 | 4037535 waterdude
waterdude's picture

this is news?

Wed, 10/09/2013 - 09:06 | 4037536 Blkhat117
Blkhat117's picture

And so the countdown to calamity continues TICK.... TOCK......

Wed, 10/09/2013 - 09:16 | 4037561 firstdivision
firstdivision's picture

Let the banks sieze those ships, they're fucking worthless in this over capacity market of tankers. 

Wed, 10/09/2013 - 09:16 | 4037568 LawsofPhysics
LawsofPhysics's picture

PetroBras is licking their chops...

forward soviet!!!

Wed, 10/09/2013 - 09:25 | 4037589 Iam Yue2
Iam Yue2's picture

Sure GCHQ could have told you that 18 months ago.

Wed, 10/09/2013 - 09:31 | 4037609 AbbeBrel
AbbeBrel's picture

Gotta give Hendry some credit for seeing this one coming:

 

 

http://www.scribd.com/doc/91764042/April-2012-TEF-Commentary

also from :  http://brazilianbubble.com/hugh-hendry-short-the-brics-japan-and-eike-batista/

 

Hugh Hendry: “Short” the BRICs, Japan, and Eike Batista POSTED ON APRIL 30, 2012 · 5 COMMENTS

 

One of our favorite hedge fund managers, Hugh Hendry, a perpetual contrarian and manager of the Eclectica fund, came out with his latest letter to investors and, surprise, surprise, he remains bearish on the BRICS (especially China), commodities and Japan… and he also adds Eike Batista to his list. Remember, Hendry is the guy who’s fund was up an astonishing 52% in 2011 as the world was falling apart.

Seems Hendry does better when times are falling apart - too bad he has had a bad case of Bernankellen lately...

Wed, 10/09/2013 - 09:38 | 4037622 youngman
youngman's picture

Brazil..Corruption..Mismanagement...standard procedure there....if a job takes $100 to complete....the corruption takes 50% off the top and it never gets finished...typical Brazil

Wed, 10/09/2013 - 10:15 | 4037714 Judge Crater
Judge Crater's picture

From the Wall Street Journal (8 Oct 2013)

Mr. Batista, once Brazil’s richest man, saw his dreams of becoming the world’s wealthiest person shattered by a deep financial crisis triggered by his flagship oil company OGX Petroleo e GasOGXP3.BR +4.76% Participacoes. The highly indebted oil company disappointed investors after its only producing oil field failed to reach production levels promised by management.

OGX’s failures led to a credibility crisis and to one of the largest corporate collapses in the history of Latin America. Mr. Batista is selling assets, cutting costs and firing people in a frantic attempt to raise cash to try to save pieces of the infrastructure empire he created from scratch over the last decade.

OGX recently missed an interest payment on bonds and its advisors are seeking to renegotiate $3.6 billion in dollar-denominated debt. A full default by OGX would be the largest ever for a Latin American corporation.

The historic Serrador building was a symbol of the rapid growth of Mr. Batista’s conglomerate between 2006 and 2011 when, after raising billions of dollar in initial private offerings, his fortune surpassed $30 billion, making him the seventh richest person in the world, according to Forbes magazine.

The building is located on a square named after India’s pacifist leader Mahatma Ghandi. The structure features stunning views of Rio de Janeiro’s Flamengo Bay and is located close to government-run oil company Petrobras and Rio de Janeiro’s downtown Santos Dumont Airport.

EBX and its companies have been cutting costs and letting people go, but it’s unclear at this point how many employees have been fired and how many remain.

Oil firm OGX on Tuesday confirmed in a statement that it has been “adjusting its personnel” as part of the restructuring process. The company has let go “fewer than 60 people” and its staff is now below 300 people, according to a spokeswoman.

Wed, 10/09/2013 - 11:00 | 4037851 Randoom Thought
Randoom Thought's picture

Maybe Mr. Batista should have thought a little more about the health of his company than the amount of money he could suck out of it and the financial system. Maybe he was NOT as much of an insider as he thought he was ... and so the betrayal of the world's wealthy by the evil power that made them welathy starts.

Evil does not share power... and who really suffers? You can be sure that it will not actually be Batista.

Wed, 10/09/2013 - 11:39 | 4037865 Pasadena Phil
Pasadena Phil's picture

I can't remember this high rofile a bankruptcy that ran counter to expectations since D'Anconio Copper discovered there was no copper in those Mexican mines that the world's elite had invested in.

Wed, 10/09/2013 - 11:14 | 4037883 Downtoolong
Downtoolong's picture

Behind every fortune there's a crime.

That one originated in Latin America, didn't it?

Wed, 10/09/2013 - 15:22 | 4038871 Jumbotron
Jumbotron's picture

Aztecs, Incas, Mayans

Wed, 10/09/2013 - 12:04 | 4038082 ejm1961
ejm1961's picture

Mr. Batista, is 100% EGO trip. Never had a single profitable company in his hands, blew up every single project he touched, and it is not the "manager fault", it is his own fault, since he is the one that never allows management to acomplish their job. He is a compulsive liar, and one of the best salesman around, + a corrupt govermnet and wrong incentives (you get promoted and bonus if you tell Mr batista what he wants to listen) then you have the current scenario. He has done this in the past, but not at this magnitude and speed. Poor investors.

Wed, 10/09/2013 - 23:02 | 4040220 Buck Johnson
Buck Johnson's picture

And that is just the beginning.  Since Brazil is really corrupt, I bet there is more money that was invested under the table that we truly don't know and it wasn't the investors money but the banks/depositors money.   When Batista said a Trillion in reserves everybody wanted to invest in him and make money, and now with everything falling apart, he could be the one big rock that starts the landslide of economic implosion for Brazil, it has happened before in that country.

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