OSX becomes 2nd Batista company to file for bankruptcy

Reuters

By Sabrina Lorenzi

RIO DE JANEIRO, Nov 11 (Reuters) - Brazilian shipbuilder OSXBrasil SA filed for bankruptcy protection on Monday,becoming the second company controlled by former billionaireEike Batista to seek court protection from creditors in justover a week.

The move, confirmed by the company shortly after a sourcetold Reuters the filing was underway, follows a decision by theOSX board on Friday to pursue bankruptcy proceedings.

The petition was made to the same court in Rio de Janeirowhere Batista's oil company OGX Petróleo e Gas Participações SA sought protection from creditors on Oct. 30. Thatcase, citing 11.2 billion reais in debt ($4.8 billion), wasLatin America's largest bankruptcy filing.

OGX is the shipbuilder's only big customer and filing theOSX petition at the same court in effect asks the judge toconsider the two cases together.

It remains unclear how much of OSX's 5.34 billion reais($2.29 billion) debt the company wants to restructure.

In a securities filing on Monday, parent company OSX said itfiled for protection along with two of its subsidiaries: OSXConstrução Naval S.A. and OSX Serviços Operacionais Ltda.

The filing left a third unit out of the petition: OSXLeasing, which owns three platforms that are leased for oilexploration purposes. In the filing, OSX said it had rescindedcontracts it had with OGX for two of the platforms.

Last week, OSX's $500 million in secured dollar-denominatedbonds rallied on speculation that keeping the leasing unit outof bankruptcy proceedings would give OSX more flexibility withthe unit's assets. OSX could, for instance, sell the platformsto generate revenues that could then be used in therestructuring.

The OSX petition continues the dismantling of a sprawlingenergy, minerals and logistics empire that Batista, a Rio-basedentrepreneur who was once the seventh richest man in the world,created over the past decade.

Before the OGX and OSX filings, Batista had already agreedto sell stakes and key assets of the other four publicly tradedcompanies in his ailing EBX conglomerate, which he built overthe past decade by leveraging rising worldwide demand forcommodities and soaring investor interest in Brazil at the time.

Over the past year, though, the empire collapsed under amountain of debt after missing production and profit targets.The missed targets caused investors to sour on Batista, quicklydiminishing the value of his empire and crippling his companies'ability to finance operations and pay debt.

INTERDEPENDENCE

Part of his group's ills stemmed from the companies'interdependence. OSX, for instance, depends for all its revenueon OGX, to which it leases oil production ships.

While Batista had promised the companies would generatesignificant business for each other, instead their problemsspread from one to the others. Indeed, once OGX hit hard timesit was almost certain that OSX would too.

Last week, the company appeared to get a lifeline when two banks agreed to refinance a 400 million real loan 17 days afterit had come due. State-run Caixa Econômica Federal andBanco Santander Brasil SA, the lender that provideda guarantee to make the loan feasible, agreed to roll over thecredit for an additional 12 months.

But it wasn't enough.

Last Friday, OSX in a regulatory filing said its board haddecided to pursue bankruptcy proceedings. The filing added thatOSX had fired its chief executive and named Angra Partners, aBrazilian financial advisory firm that is also advising OGX, tomanage its restructuring.

It is now up to the court, which has not yet agreed to theOGX petition, to accept the OSX petition as well. On Monday, thepublic prosecutor's office in Rio said it had petitioned thecourt to exclude two of OGX's foreign units, neither of whichhas assets or creditors in Brazil, from the local proceedings.

The court has until Friday to decide whether it will acceptthe OGX petition. The OSX request, if also accepted, would thenplay out as part of the OGX case.

If the court approves the OGX bankruptcy request, thecompany will have 60 days to present a restructuring plan. OGXcreditors will then have 30 days to endorse or reject the plan,though legal experts warn the proceedings could drag on for muchlonger than that.

OSX is 10 percent owned by South Korea's Hyundai HeavyIndustry.

In addition to Caixa and Santander, the company's creditorsinclude Brazil's national development bank, known as the BNDES.In a statement Friday, the bank said it granted OSX a $228million bridge loan, but added that the loan is backed by bankguarantees and presents no risk to the BNDES.

Stock market regulators on Monday suspended trading in OSXshares until its bankruptcy filing is official.

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