OGX Insolvency – What Distressed Investors Need to Know About Brazilian Bankruptcy Process

On October 30, 2013, Brazilian oil company OGX Petróleo e Gas Participações SA (OGX) filed for bankruptcy protection (or “judicial reorganization”) in Rio de Janeiro after restructuring discussions between the company and its major creditors ended without agreement. With nearly $5 billion of debt, OGX is the largest and most complex bankruptcy proceeding to be conducted in Latin America and will not only test Brazil’s nascent bankruptcy law, but also presents itself as the latest potential opportunity for distressed investors focused on Latin American emerging markets.

OGX values itself between $2.4–$2.7 billion, with liabilities between $5.1–$6.8 billion. Its largest single creditor is its sister company, OSX Brasil SA (OSX), a shipyard and ship-leasing company, which claims it is owed at least $1.1 billion (representing approximately 21 percent of OGX’s obligations). Despite currently low expected recoveries for unsecured creditors, there still exists substantial opportunity to uncover value in the company’s distressed debt and trade claims. OGX’s creditor list contains upwards of 250 creditors, including major companies such as Diamond Offshore Drilling, a Houston-based drill-rig operator; Ensco, Inc., a London-based drill-rig operator; and General Electric. The company’s largest bondholders (with a total of $3.6 billion outstanding), are led by PIMCO and BlackRock.

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