Petrobras Still Breaching Debt Rules, Aurelius Tells Bondholders
8:55 PM BRST
February 2, 2015
(Bloomberg) — Aurelius Capital Management LP said Petroleo Brasileiro SA remains in violation of bond terms and creditors should notify the oil producer that the infraction will constitute a default if it isn’t resolved within 60 days.
Petrobras failed to report third-quarter earnings that complied with rules set by the International Accounting Standards Board, violating covenants of its dollar-denominated debt, the hedge fund said in a letter to bond holders obtained by Bloomberg News. The state-controlled company at the center of Brazil’s biggest ever graft case released unaudited results Jan. 28 after delays prompted Aurelius to ask bondholders at the end of December to notify Petrobras of an event of default.
“We would love to see Petrobras normalize its financial reporting and thereby regain access to the capital markets,” Aurelius said in the letter. “We bondholders cannot control whether that happens; but we can control whether we hold Petrobras to the bargain it made with us.”
For the notice of default to be valid, it must be sent by holders of at least 25 percent of each series of notes or the trustee, according to the letter and bond documents. Once the grace period ends, the same threshold is required for bondholders to demand immediate repayment in a maneuver called acceleration.
Aurelius suggested that the oil producer negotiate a covenant waiver with creditors if it’s unable to report earnings that satisfy the bond covenants within 60 days.
Brian Schaffer, a spokesman for Aurelius at the public-relations firm Prosek Partners in New York, confirmed the authenticity of the letter and declined further comment.
Petrobras directors said in a statement accompanying the third-quarter earnings release that they failed to reach an agreement on the size of multi billion-dollar writedowns linked to the alleged misconduct. The company said it is reviewing impairments on refineries and other projects in which suppliers allegedly paid bribes to win contracts.
The company’s press office declined to comment on Aurelius’s letter.
Petrobras Chief Financial Officer Almir Barbassa said on a conference call with analysts Jan. 29 that the company didn’t remain in breach of any bond rules.
“The company’s opinion is that we are in compliance with the covenant,” he said. “If a creditor disagrees, we are naturally going to speak with them to make sure that we are on the same page.”
Petrobras’s bonds and shares have tumbled amid the so-called Carwash investigation into an alleged cartel of construction companies that for years fixed bids for the producer’s contracts and paid bribes to executives. Since the November arrests of about two dozen people suspected of money laundering and other crimes, the company’s notes due 2023 have lost 11 percent, with yields surging to about 2 percentage points to 7.4 percent. Petrobras shares have sunk 36 percent.