Petrobras Bond Default Odds Increase; Aurelius Ups Pressure

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Petrobras Bond Default Odds Increase; Aurelius Ups Pressure

The Petrobras bribery and corruption scandal is starting to have serious ramifications on the firm’s financial situation. According to Katia Porzecanski and Paula Sambo of Bloomberg News, Aurelius Capital Management LP’s bid to declare Petroleo Brasileiro in default on certain bonds has led the cost to protect against a Petrobras non-payment to soar to the highest level since the aftermath of the financial crisis.

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Aurelius claims Petrobras violated bond contracts

New York-based hedge fund Aurelius claimed in a letter obtained by Bloomberg News last week that Petrobras had violated bond contracts by failing to report third-quarter results on time. According to Aurelius, Petrobras had until December 29 to announce 3Q earnings according to the contracts on some of its $53.6 billion of bonds.

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“Holders of the bonds should immediately take the prudent precaution of giving formal notice,” Aurelius claimed  in the letter. “While mere notice of default should not itself cause a crisis, bondholders cannot avoid a crisis merely by sticking their heads in the sand and accepting Petrobras’s assurances as a certainty.”

“They only have a window to make this happen and they may get other investors to join them,” Jorge Piedrahita, CEO of Torino Capital LLC, noted in an e-mail exchange with Bloomberg. “Institutional long-only investors just want this to be over and keep receiving their coupons.”

Petrobras delaying results to assess impact of bribery investigation

Of note, Petrobras has already delayed reporting its financial results twice so it can better assess the impact of a federal investigation into bribes the firm allegedly received from several major construction companies. Aurelius, a well-known legal vulture hedge fund, has fought countries such as Argentina and companies such as General Motors in U.S. courts, is trying to encourage holders of at least 25% of a series of Petrobras notes, the threshold needed for the default notice to be valid, to file for default.

Petrobras first delayed its earnings in December as board members argued about the size of writedowns related to the corruption scandal, according to an anonymous company source said on December 12th. The firm noted then that creditors had waived the reporting requirements until the end of January.

Aurelius’s letter noted that that the waiver only applied to one of Petrobras’s credit facilities, and that at least $4.1 billion of Petrobras debt was technically in default.

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7 COMMENTS

  1. No doubt PBR is undervalued but I’m sorry to say PBR is not a corporation serving the interests of shareholders. The political involvement by the president’s party is clear and more evidence of corruption will pop out everywhere, if you don’t know Brazilian society. So your evaluation is missing the immense and unpredictable fall out if the Government bails out Petrobras. But you might be less adverse to risk since you already lost 25%.

  2. Thank You for your insight. Believe me, only thing that bother me is that I’m out of cash till next paycheck and some of that opportunity is passing me right now :(.

  3. Are you guys not aware these contracts ref scandal date back to over 12 years ago? It has absolutely nothng – nada – to do with current administration.
    That is not to say in a company w over 80k people, there is not a single “bent” person – of course not, but the company has put very strong practices in place – The man at the center of the scandal was actually sacked many years ago –
    To be frank – it’s hard to imagine a single BIG corp that doesn’t have some shady deal tucked away in its acounts.
    BP has been at the center of possibly one of the biggest ever Insider Trading Corruption scandal, yet very few mention of that in the mainstream media.
    I guess, it’s because BP is not sitting on 10 Trillion US dollars of Pre-Salt oil, like Petrobras is.
    That is what is at stake here > trillions of proven Oil Reserves in Brazil – hence, some of the media scaremongering, a lot of other Petrol Cos would love to get a slice of that.
    That is my view.

  4. To be fair, term technical default is so much mambo jambo for wallstreet. (It’s like your property tenant is blackout drunk but still never misses his payment) Sergio do you really think that Brasil will risk with it’s most valuable asset which enjoys monopoly and fixed prices? Of course there are always possibility for everything, but for this accession I’m willing to bet. Disclosure: I’m long PBR Since $8.29 and adding on any substantial drop.

  5. It’s not a matter of having the Brazilian people pay for this mess, because they eventually will. Big geo-politics is the real topic here: A technical default triggered by the failure to file audited results allows for early collection by bondholders, hastening Petrobras’ demise. Petrobras has taken hundreds of billions based on fraudulent accounting and no-one knows how deep the hole is. We do know it’s a far-left con-job of global scale. Fortunately, there are enough brains and motivation in the political/legal/financial areas to take the funds out of their ‘revolutionary’ agenda of supporting Americas enemies (Russia, Syria, Iran, China) and offering long-term competition to the Saudis. Petrobras is a 48% publicly owned company with the highest corporate debt in the oil/gas industry. At it’s lowest value it will be ripe for a debt buying and equity take-over by an American and/or Saudi group. BTW, Dilma and the Brazilian people will be just collateral at that point.

  6. Petrobras defaulting?
    Honestly, there’s a bigger chance of me becoming the 1st chain-smoking Brazilian astronaut in space.. it aint gonna happen.. :)

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