Hedge Funds Aurelius, Alden Oppose OAS Creditor-Protection Bid

Hedge Funds Aurelius, Alden Oppose OAS Creditor-Protection Bid

By Boris Korby/Bloomberg

3:38 PM BRT
April 17, 2015

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Hedge funds Aurelius Capital Management LP and Alden Global Capital LLC objected to efforts by the bankrupt Brazilian construction company OAS SA to halt lawsuits against it in the U.S.

OAS, which filed for court protection in Sao Paulo last month, is among more than 20 companies that have been banned from bidding on new projects with Brazilian state oil producer Petroleo Brasileiro SA amid an investigation into whether executives received bribes in exchange for work contracts.

OAS, which has 9.2 billion reais ($3 billion) in debt, said that it needs court protection in the U.S. to avoid disruptions to its operations and Brazilian restructuring. The hedge funds Friday told the Manhattan bankruptcy court the company shouldn’t be granted immediate relief.

“The claimed emergency is an illusory one of the debtors’ own making,” because OAS has been in default on some debts since January but didn’t seek U.S. protection until this month, Aurelius and Alden said in a court filing.

Aurelius, which along with Alden owns $266 million of OAS’s 2019, 2021 and perpetual dollar-denominated securities, reiterated previous comments that OAS’s bankruptcy is part of an effort to defraud bondholders.

OAS engaged in secret intercompany transactions intended to eliminate bondholders’ seniority to claims on the company’s most valuable assets, according to their filing.

“There was no operation that resulted in the disposal of assets that could serve creditors,” Diego Barreto, corporate development director at OAS, said in an April 1 phone interview.

Chapter 15

OAS has $1.8 billion of outstanding dollar bonds. Its $875 million of notes due 2019 have plunged to 15 cents on the dollar as of 12:43 p.m. in New York, from as high as 97 cents in November, according to data compiled by Bloomberg.

OAS this month sought protection from creditor actions under Chapter 15 of the U.S. Bankruptcy Code. Such protection isn’t automatic. The company must show that Brazil is home to the principal bankruptcy and that creditors’ rights are adequately honored under that country’s law.

The U.S. court can halt creditor actions on a temporary basis while it considers whether to recognize the Brazilian reorganization as the “foreign main proceeding,” when such actions in the U.S. would be permanently halted. Once that happens, the U.S. court can also enforce rulings by the Brazilian court and send assets in the U.S. to that country.

Friday’s filing was made in response to OAS’s request for provisional protection.

Aurelius has been involved in past litigation against the government of Argentina, bond insurer MBIA Inc. and Energy Future Holdings Corp., the former TXU Corp.

In December the distressed-debt investor 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.

The case is In re OAS SA, 15-10937, U.S. Bankruptcy Court, Southern District of New York (Manhattan).