UPDATE 1-Court ruling casts shadow over Brazil offshore oil sector

A Brazilian appeals court has ruled that a Liberian mortgage is invalid for a Brazilian-owned oil production ship, sources with direct knowledge of the matter said on Wednesday, casting further doubt over the future of secured lending for such vessels in the world’s largest deepwater market.

The court in São Paulo upheld a February ruling voiding the use of a $500 million mortgage registered in Liberia for the OSX3 floating production, storage and offloading vessel, or FPSO, owned by a unit of OSX Brasil SA, said the sources, who requested anonymity since the decision has not been made public.

A spokeswoman for the court declined to confirm the ruling before it is published.

OSX Brasil, the shipbuilding arm of former billionaire Eike Batista’s mining, energy and logistics empire, has been under bankruptcy protection in Brazil for three years. The FPSO is owned by OSX3 Leasing BV unit, which is also under creditor protection in the Netherlands.

Wednesday’s ruling favors investment bank Grupo BTG Pactual SA in an effort to obtain immediate repayment on a $28 million loan from OSX3. Bondholders in OSX3, represented by Nordic Trustee ASA, had asked the court to reverse the earlier ruling, which broke their right to claim repayment first if OSX3 declared bankruptcy.

BTG Pactual also has a lien on the FPSO.

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