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 [10]:
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 [11]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.