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Freefall

25 February 2016 by lberuti

“LetterOne Technology has been informed by Tim that – whilst it thanks LetterOne Technology for its approach – it does not wish to enter into further discussions, about the facilitation of a merger between Oi and Tim in Brazil” LetterOne said in a statement. The plan laid out last October was for LetterOne to inject as much as $4bln in Brazil’s Oi – which is PORTEL’s parent company – on condition that the carrier merges with Tim. With no other obvious consolidation opportunities, given the level of debt that PORTEL has to deal with, the likelihood of a restructuring seems higher now. At the current rate of cash burn, something has to happen before the end of Q1 2017. The question is “what does the company decide regarding their bonds due in July 2016?”. Do they restructure before they come due? Or do they muddle through as long as they can in the hope of finding an alternative solution to the aborted Tim’s deal? Investors did not wait to punish the 5 year risk premium and sent it 15 points higher to 60 points upfront (to insure $1 of debt you need to pay 60cts upfront and then 5cts every year).