Aurelius Says OAS Seeking to Defraud Bondholders in Bankruptcy
By Boris Korby
1:35 PM BRT
April 1, 2015
(Bloomberg) — Hedge fund Aurelius Capital Management LP said that Brazilian builder OAS SA’s bankruptcy is part of an effort to defraud bondholders.
Aurelius affiliate Huxley Capital Corp. filed a complaint in Manhattan federal court March 5 claiming OAS transferred assets from two units that guarantee bonds to shield them from creditors. The company has been locked out of credit markets after executives were arrested in November as part of an investigation into whether state-run oil company Petroleo Brasileiro SA demanded bribes in exchange for work contracts.
“Bankruptcy is supposed to provide companies a second chance, not a license to steal,” Aurelius said in a statement Wednesday. “If OAS’s construction business is operationally viable, it can be recapitalized and resuscitated without resort to such low tactics.”
OAS became the largest Brazilian builder to seek protection from creditors when it filed for bankruptcy in Sao Paulo on Tuesday. Closely-held OAS, which missed a local debt payment in January, said in a statement that it submitted court documents to restructure 7.03 billion reais ($2.18 billion) of debt in a process known as judicial recovery.
The company didn’t immediately respond to requests for comment on Aurelius’s letter.
OAS has $1.8 billion of outstanding dollar bonds. Its $400 million of notes sold in June 2014 have plunged to 14 cents on the dollar, from as high as 101.6 cents in September, according to data compiled by Bloomberg.
Huxley’s suit targets a series of corporate moves by OAS in December, which Aurelius alleged reduced the value of its notes. The firm is seeking an order undoing the asset transfers or awarding it unspecified damages.
After the November arrests, “OAS was exposed as a deeply insolvent enterprise in utter financial collapse,” Aurelius said in the statement. “The next month, OAS engaged in one of the worst sprees of misappropriation and deception we have ever encountered.”
OAS and more than 20 other companies have been banned from bidding on new projects with Petrobras. The builder has said it’s cooperating with investigators.
OAS said in a statement yesterday that it plans to sell stakes in its Invepar airport concession, the Enseada shipyard, units OAS Empreendimentos SA, OAS Solucoes Ambientais, OAS Oleo & Gas and OAS Defesa, as well as the Dunas and Fonte Nova stadiums, to pay debt. Potential buyers of assets wanted the company to file for bankruptcy protection before they would close any deals, said Fabio Yonamine, president of OAS Investimentos, the investment arm of OAS.
Aurelius has been involved in past litigation against the government of Argentina, General Motors Co., bond insurer MBIA Inc., and Energy Future Holdings Corp., the former TXU Corp.
In December Aurelius sent a letter to Petrobras bondholders urging them to give the company a formal notice of default after it failed to report third-quarter results.