China Development Bank provides $600 million buyer's credit to Telemar Norte Leste SA to purchase Huawei equipment and services (Linked to Record ID#59611 and #96429)

Project narrative

On December 18, 2015, China Development Bank (CDB) signed two separate loan agreements with a total value of $1.2 billion with Telemar Norte Leste S.A. (TMAR), a Brazilian telecommunications company and subsidiary of Oi S.A. The first was a $600 million buyer's credit loan and the second was a $600 million refinancing credit agreement. Oi S.A. served as guarantor for both loans. The purpose of the buyer's credit (captured via Record ID#59744) was to purchase equipment and services from Huawei Technologies. The original borrowing terms included a 9.5-year maturity (final maturity date: June 18, 2025), a 3.29-year grace period, and an annual interest rate of LIBOR plus 200 basis points. Under the original buyer’s credit agreement, the principal amount was to be amortized with 14 semiannual installments taking place from April 2019 to June 2025. The purpose of the refinancing credit agreement (captured via Record ID#59611) was to help repay previous CDB loans. The original borrowing terms included a 5-year maturity (final maturity date: December 18, 2020), a 3.29-year grace period, and an annual interest rate of LIBOR plus 190 basis points. Under the original refinancing credit agreement, the principal amount was to be amortized with 14 semiannual installments taking place from April 2019 to December 2020. Then, in June 2016, Oi S.A. (“Oi”) filed Brazil's largest ever bankruptcy. Consequently, the borrower was unable to meet its repayment obligations to CDB until 2023 at the earliest. After a nearly 2-year long process, creditors of Oi and several of its subsidiaries — including Telemar Norte Leste S.A. (TMAR) — approved a plan of reorganization at a creditors meeting on December 19, 2017, held in a former Olympic boxing venue on the outskirts of Rio de Janeiro, to restructure nearly $20 billion in claims, the largest corporate restructuring in the history of Latin America (and potentially any emerging market), and the first truly public Brazilian company to go through judicial restructuring since Brazil reformed its insolvency laws in 2005. After initially considering an attempted out-of-court exchange in the spring of 2016, Oi and several of its subsidiaries filed for judicial reorganization in Brazil in June 2016, and the Brazilian reorganization court accepted jurisdiction over each of the debtors, including Oi’s two Dutch finance subsidiaries, Oi Brasil Holdings Coöperatief U.A. (“Coop”) and Portugal Telecom International Finance B.V. (“PTIF”). Shortly thereafter, Oi and/ or certain other of the debtors in Brazil filed for additional protection in ancillary proceedings in New York and the United Kingdom, as well as separate proceedings in the Netherlands. In Brazil, as in most countries, the bankruptcy law respects the corporate separateness of debtors, and therefore it is the general rule that, within a corporate group restructuring, creditors’ claims will not be treated pari passu with those of creditors of other members of the corporate group. However, particularly since the Rede Energia S.A. restructuring in 2014, Brazilian courts have increasingly confirmed restructuring plans for Brazilian corporate groups that substantively consolidate creditor claims, even over the objections of creditors. Oi’s initial proposed restructuring plan, presented in September 2016, took a substantively consolidated approach. Various creditor groups opposed such substantive consolidation (albeit for different reasons), and filed motions against substantive consolidation with the restructuring court. An appeals court in Rio de Janeiro ultimately decided that the question of substantive consolidation was one that should be determined by creditors by vote at a creditors meeting. Importantly, the judge ruled that this vote should occur on an entity-by-entity basis, thereby providing the creditors of Oi and its debtor-subsidiaries with an important protection by ultimately leaving the decision on whether to accept substantive consolidation in the hands of creditors – if creditors at any particular entity were to reject substantive consolidation, it would present significant difficulties for the rest of the Oi Group to restructure on a substantively consolidated basis. If this decision is adopted more widely as precedent in Brazil, it could represent an important step in the right direction towards protecting creditors’ interest against unfettered substantive consolidation. In Oi’s case, a consensual deal with creditors was eventually reached, and creditors of each debtor entity voted in favor of substantive consolidation. Oi’s restructuring plan was approved, on a substantively consolidated basis, on December 19, 2017, after a nearly two-year process. The plan was confirmed by the Brazilian restructuring court in January 2018. Then, on June 21, 2018, Telemar Norte Leste S.A. and CDB reached an agreement to restructure $671,479,642.10 of outstanding debt under a revised set of repayment terms, including an additional 66-month grace period, a fixed interest rate of 1.75%, and a revised repayment schedule (with non-linear amortization) beginning on August 25, 2023 and ending February 25, 2035 (as captured via Record ID#96429).