OGX CEO Ouster May Open Door For Bankruptcy Protection Filing

The ouster of OGX's chief executive opens the door for embattled Brazilian tycoon Eike Batista [pictured above] to exit the oil company and for OGX to seek bankruptcy protection, sources told Reuters.

Luiz Carneiro was replaced on Tuesday by Chief Financial Officer Paulo Simões Amaral as CEO of OGX Petróleo e Gás Participações SA. The move likely puts more power in the hands of Brazil-based Angra Partners, the financial adviser hired by Batista to restructure the liabilities of OGX and its sister company shipbuilder OSX Brasil SA, said one of the sources who is familiar with Angra's thinking.

As the collapse of Batista's empire has accelerated over the past three months, Angra and its senior partner, Ricardo Knoepfelmacher, have sought to arrange for bankruptcy protection to shrink OGX and OSX and save them as going concerns. Nearly all OSX business involves building or leasing vessels for OGX, which is not producing enough oil and gas to pay for them.

Batista's fall from grace, which knocked him off his perch as one of the world's 10 richest men, has led to a struggle between shareholders, banks and bondholders over who will get to keep the scraps. The dramatic unraveling of Batista's energy, mining, port operation and shipbuilding empire has also become a symbol of Brazil's own recent economic woes after a decade-long boom that made it one of the world's hottest emerging economies.

Carneiro did not always agree on strategy with Knoepfelmacher, the source said. Angra turned down repeated requests for interviews with Knoepfelmacher and other partners.

Knoepfelmacher, known in Brazil simply as "Ricardo K," is one of the country's most respected corporate handymen. A former CEO of now extinct Brasil Telecom SA, he arranged the sale of the company to rival Oi SA for more than $2.5 billion in 2008.

Carneiro's departure gives Angra some breathing room as it seeks $150 million of emergency capital from bondholders for OGX and as it draws up legal documents to file for court protection in Brazil, a second source with direct knowledge of the situation said.

"Angra would negotiate something with bankers and Carneiro would negotiate something else with bondholders," said the first source, who asked for anonymity because the sensitivity of talks. "It became very complicated for all parties."

OGX, once the flagship company of Batista's EBX Group, declined to comment. EBX and OSX also declined comment.

Bankruptcy protection in Brazil is roughly equivalent to Chapter 11 bankruptcy protection in the United States and would give the company a chance to reduce its liabilities and emerge as an going concern. Without it, the company may be forced into liquidation, ending the chance of profit from future operations.

Batista's departure is essential to the bankruptcy protection filing, the first source said. By exiting, he will show the bankruptcy judge that Angra and creditors are in charge. By offering to swap his stock for bonds, he will also show the court that he has made an effort to pay at least part of his debts.

"Batista's departure is part and parcel of any potential bankruptcy filing," the source said.

OGX bonds due in 2018 rallied on Wednesday, climbing to as high as 10.75 cents on the dollar from about 8 cents the prior session, traders said.

OGX stock surged for a second day, rising 38 percent in Sao Paulo trading to 0.47 real, on track for its highest close in more than five weeks. On Tuesday it rose nearly 50 percent. OSX rose 12 percent to 0.82 real, a seven-week high.

"The goal is to try and keep the companies alive in some form," said the first source. "A bankruptcy filing is seen as the best way to do that for both OGX and OSX."

GETTING BATISTA OUT

Batista's departure from OGX would allow the former billionaire to free himself of an obligation under a put option to invest up to $1 billion of new capital into the company. Former CEO Carneiro led a push to get Batista to pay $100 million of that put option before year-end after board members representing minority shareholders, normally charged with control over the option, quit.

That put option was seen as a source of potential leverage for bondholders, who were dismayed by the firing of OGX's previous chief financial officer in the midst of negotiations, according to a third source familiar with the talks. It was unclear how bondholders viewed Carneiro's departure.

In the past year, OGX shares have fallen more than 90 percent, the result of lower than expected output from the company's first offshore field and dwindling cash to prepare other fields to start producing oil.

The plunge in OGX shares set off a chain reaction among Batista's listed companies, pushing all of the stocks lower and forcing him to sell off what he could. The stock-price collapse, however, made it hard for Batista to use his shares as collateral for loans to keep the companies afloat.

Batista had challenged the right of Carneiro to request the new cash. Carneiro said at the time that the put's rules gave top executives the right of exercise in the absence of the board.

A bankruptcy filing would allow Batista to offer minority shareholders a chance to salvage something from their investments. It may also force a quicker end to talks with bondholders.

If they don't take Batista's offer of shares for their bonds, they will likely receive nothing during a court-led bankruptcy restructuring, the first source said.

By Jeb Blount and Guillermo Parra-Bernal (C) Reuters 2013.