Legal Proceedings Report • Mar 3, 2023
Legal Proceedings Report
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Announcement | Lisbon | 3 March 2023
PHAROL, SGPS S.A. hereby informs on the Material Fact disclosed by Oi, S.A., according to the company's announcement attached hereto.
Oi S.A. – In Judicial Reorganization CNPJ/ME No. 76.535.764/0001-43
NIRE 33.3.0029520-8 Publicly-Held Company
Oi S.A. – In Judicial Reorganization ("Oi" or "Company"), in accordance with Paragraph 4 of Article 157 of Law No. 6.404/1976 and the provisions of the Brazilian Stock and Exchange Commission ("CVM") Resolution No. 44/21, and further to the Material Fact dated October 27, 2022, December 31, 2022 and February 2 and 3, 2023, hereby informs its shareholders and the market in general that, after several discussions and negotiations involving a potential restructuring of certain debts of the Company, as of the date hereof, the Company has reached an agreement with a group representing the majority of (i) holders of 10%/12% Senior PIK Toggle Notes due in 2025 issued by Oi, on July 27, 2018, and guaranteed, jointly and severally, by Telemar Norte Leste S.A. – In Judicial Reorganization, Oi Móvel S.A. – In Judicial Reorganization, Oi Brasil Holdings Coöperatief U.A. – In Judicial Reorganization and Portugal Telecom International Finance B.V. – In Judicial Reorganization ("Noteholders"); and (ii) lenders of loans to the Company deriving from Export Credit Agencies agreements ("ECA Holders" and, with the Noteholders, the "Financial Creditors"), on the principal commercial terms and conditions for a restructuring of certain debts of the Company and long-term financing to be provided to support the Company's ongoing operations (the "Proposed Restructuring"). The Company believes that the Proposed Restructuring will comprehensively enhance its balance sheet and deliver long-term value to all Oi stakeholders.
The principal terms of the Proposed Restructuring are set out in the term sheet attached to this Material Fact (the "Restructuring Term Sheet").
The Proposed Restructuring also contemplates a potential interim "debtor in possession" financing facility, as permitted by Law No. 11,101/05, in the amount of US\$ 275,000,000.00 (two hundred and seventy five million dollars) (the "DIP Financing"), which is expected to be provided by certain Financial Creditors, to address the Company's short-term funding needs, before the long term financing included in the
agreement can be accessed. The principal terms of the DIP Financing are set out in the term sheet attached to this Material Fact (the "DIP Term Sheet" and together with the Restructuring Term Sheet, the "Term Sheets").
As set out in the Term Sheets, the detailed final terms of Proposed Restructuring, including the final terms of DIP Financing, are subject to a number of conditions, including, without limitation, (i) the agreement of the definitive documentation necessary or desirable to implement the Proposed Restructuring, and (ii) the approval by the 7th Corporate Court of Justice of the Capital of the State of Rio de Janeiro.
The Company also intends to enter into a restructuring support and lock-up agreement with the majority of the Financial Creditors (respectively, the "RSA" and the "RSA Creditors"), to facilitate the implementation of the Proposed Restructuring. Pursuant to the terms of the RSA, the RSA Creditors will agree to support and vote in favour of a preagreed Judicial Recovery Plan consistent with the Term Sheets (or more detailed forms thereof) to be submitted by the Company in the context of the process of judicial reorganization of the Company and its subsidiaries Portugal Telecom International Finance B.V. – In Judicial Reorganization and Oi Brasil Holdings Coöperatief U.A. – In Judicial Reorganization, filed yesterday before the 7 th Corporate Court of Justice of the Capital of the State of Rio de Janeiro ("Judicial Reorganization"), as set forth in the Company's Material Fact disclosed earlier today.
Given the level of indicative support for the Proposed Restructuring received to date, the Company is very confident it will present a viable Judicial Recovery Plan to implement the Proposed Restructuring in a manner satisfactory to all stakeholders in the near term.
In connection with the negotiations of the Proposed Restructuring, the Company and its representatives and legal and financial advisors (collectively the "Company's Representatives") have shared certain non-public material information ("Confidential Information") with certain Financial Creditors and their legal and financial advisors (collectively the "Financial Creditor Representatives"), as well as held meetings with relevant Financial Creditors and Financial Creditor Representatives.
Pursuant to the terms and conditions of the Confidentiality Agreements entered into by the Company with the relevant Financial Creditors, the Company has agreed to make public certain Confidential Information provided by the Company and/or Company Representatives to the relevant Financial Creditors in connection with discussions to agree the terms of the Proposed Restructuring ("Materials").
The Materials consist of the presentations and other documents and information prepared by the Company and/or Company Representatives in relation to the Proposed Restructuring, which are attached to this Material Fact.
The Materials and the Term Sheets can also be found in the attachment to this Material Fact.
All information contained in the Materials and the Term Sheets was accurate on the date of delivery by the Company and the Company's Representatives to the Financial Creditors and the Financial Creditor Representatives, has not been updated since the date of delivery and shall not be used for any purpose other than the ones necessary for the implementation of the Proposed Restructuring. The information included in this Material Fact, the Term Sheets and the Materials made available are being made public to comply with the Company's disclosure obligations provided for in the referred Confidentiality Agreements.
As part of its efforts to restructure its future obligations, the Company also discloses through this Material Fact it has received from V.tal, yesterday, a binding plan support proposal, in connection with its Long-Term Lease Agreement Contract "Take-or-Pay" credits originally from Globenet ("LTLA") against the Company. This plan support proposal indicates V.tal's commitment to adhering to a proposed Judicial Recovery Plan, by extending the company a 50% discount on all future LTLA obligations from 2025 to 2028, provided certain conditions are met. Amongst those conditions, the payment of 44% of the remaining post discount credits should be paid by payments in kind, through an agreement to receive a minimum volume of decommissioned cable network infrastructure, along with the responsibility for all of the costs of extracting and monetizing them, and which the company would otherwise sell as scrap. All other credits should continue to be paid according to their original schedule from 2025 to 2028, with the committed discounts already applied. This proposal will be analyzed by the Company, as it potentially signals a very significant reduction of Oi's future non-financial liabilities, being aligned with the restructuring plan objectives.
The Company will continue the negotiations with, amongst others, the Financial Creditors in order to implement the agreement and execute the definitive documents, and will keep its shareholders and the market in general informed of any development regarding the subject matter of this Material Fact.
Rio de Janeiro, March 2, 2023.
Oi S.A. – In Judicial Reorganization Cristiane Barretto Sales Chief Financial and Investor Relations Officer
This Material Fact contains forward-looking statements. Statements that are not historical facts, including statements of Oi's beliefs and expectations, business strategies, future synergies, cost savings, future costs and future liquidity, are considered forward-looking statements. The words "will", "shall", "would", "should", "anticipates", "intends", "believes", "estimates", "expects", "anticipates", "plans", "targets", "purpose", "projects", "forecasts" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. There is no guarantee that the expected events, tendencies or expected results will actually occur. Such statements reflect the current view of Oi's management and are subject to various risks and uncertainties. These statements are based on several assumptions and factors, including general economic and market conditions, industry conditions, corporate approvals, operating factors and other factors. Any changes in such assumptions or factors could cause material differences between the actual results and current expectations. All forward-looking statements attributable to the Company or its affiliates, or people acting on their behalf, are expressly qualified in their entirety by the cautionary notices set forth in this paragraph. Undue reliance should not be placed on these statements. Forward-looking statements only speak as of the date on which they were made. Except as otherwise required by the Brazilian securities legislation and the rules and regulations of the CVM, or applicable regulatory authorities of other countries, the Company and its affiliates do not have any intention or obligation to update or publicly announce the results of any revisions to any of its forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting forward-looking statements. However, it is advisable to consult other disclosures made by the Company on matters related to reports and communications filed by the Company within the CVM.
OIBR B3 LISTED N1
New blow out material from discussions with Creditors
This presentation contains unaudited figures and forward-looking statements as defined in applicable Brazilian regulations. Statements that are not historical facts, including statements regarding the beliefs and expectations of Oi, business strategies, future synergies, cost savings, future costs and future liquidity are considered forwardlooking statements.
Words such as "will", "should", "would", "shall", "anticipates", "intends", "believes", "estimates", "expects", "plans", "targets", "objective" and similar expressions, if related to Oi or its management, are intended to identify forward-looking statements. There is no guarantee that expected events, trends or results will effectively occur. Such statements reflect the current view of Oi's management and are subject to many risks and uncertainties. These statements are based on assumptions and factors, including general market and economic conditions, industry conditions, corporate approvals, operating factors and others. Any changes in such assumptions or factors may impact results, which, in turn, may differ materially from current expectations. All forwardlooking statements attributable to Oi or its affiliates, or to persons acting on their behalf, qualify entirely as cautionary statements as set forth in this paragraph. Disproportionate reliance should never be placed on such statements. Forward-looking statements only make reference to the date in which they were disclosed.
Except as required by securities legislation in Brazil and rules and regulations issued by the CVM, or regulatory bodies in other applicable jurisdictions, Oi and its affiliates are not obligated, and do not intend, to update or publicly announce revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or in any other factors that affect forward-looking statements. We recommend, however, that you gain awareness of additional disclosures made by Oi on related matters by consulting reports and/or notices that Oi may file with the CVM.
De-lever Company to mid and long-term sustainable levels
| KEY PROPOSAL TERMS | |
|---|---|
| SCOPE OF RESTRUCTURING |
• Financial creditors including ECAs, Local Banks, and Bondholders Certain Non-financial creditors, including providers of unused Take Or Pay ("ToP") obligations (including Towers, Submarine Cables and Satellite $\bullet$ contracts): Negotiations ongoing with objective to agree on discount levels of up to 50% of future unused ToP, according to specific terms with each individual non-financial creditor prior to plan approval - Illiquid contingent claims |
| OPTION 1 DESCRIPTION |
• Option 1 creditors required to provide new capital to Oi in the form of senior secured debt (the "New Priority Secured Debt") As a condition to this deal and signing up to an Restructuring Support Agreement (RSA), the Company and RSA holders shall enter into interim DIP financing - Interim financing will be repaid with proceeds of the New Priority Secured Debt, in cash or by cashless roll-over - RSA holders shall provide the interim DIP financing at markets terms and conditions Option 1 creditors receive a partial roll up of existing claims into R\$10.75bn of secured debt (the "Roll-Up Debt") $\bullet$ Remaining claims, together with remaining claims of Option 2, exchanged into 80% of fully diluted, pro-forma, reorganized Oi Equity, assuming all voting $\bullet$ rights according to Brazilian Law |
| OPTION 2 DESCRIPTION |
• Option 2 creditors are not required to provide new money 30% of claims electing Option 2 exchanged into a secured debt instrument (the "A&E Reinstated Debt") $\bullet$ Remaining claims, together with remaining claims of Option 1, exchanged into 80% of fully diluted, pro-forma, reorganized Oi Equity, assuming all voting rights according to Brazilian Law |
| EXISTING SHAREHOLDERS |
Shareholders shall have the right to purchase equity in the aggregate amount of debt converted in the RJ at the par price of such debt $\bullet$ New money raised through the share repair program will be used in accordance with Brazilian law $\bullet$ Existing shareholders to receive 20% of the fully diluted pro forma reorganized Oi equity $\bullet$ |
| Governance | Board composition and governance subject to Brazilian law and voting mechanisms |
| NEW PRIORITY SECURED DEBT | ROLL-UP DEBT | A&E REINSTATED DEBT | ||||
|---|---|---|---|---|---|---|
| Option 1 | Option 2 | |||||
| ISSUER / GUARANTOR |
Oi S.A. | Oi S.A. | Oi S.A. | |||
| PRINCIPAL | The greater of R\$4.0bn or US\$750mm New Priority Secured Debt, constituting new money (NM) and/or rollover DIP Option 1 Creditors that enter into backstop arrangements in respect to the New Priority Secured Debt to receive up to (full backstop) R\$750mm in New Priority Secured Debt |
Total: R\$10.75bn New money providers have the ability to exchange up to R\$10.75bn of existing debt into Roll-Up Debt |
30% of claim | |||
| CURRENCY | USD or BRL (at holder's option) | USD or BRL (at holder's option) | USD or BRL(at holder's option) | |||
| MATURITY | June 2027 | 4.5 years post-closing | 10 years post-closing | |||
| AMORT. | Bullet | Bullet | Bullet | |||
| INTEREST | 10.0% cash interest in USD; or 7.5% cash + 6.0% PIK Or cost in BRL-equivalent |
5.0% Cash; or 0.5% Cash plus 8.0% PIK Or cost in BRL-equivalent |
80% CDI (1) PIK, subject to cap of up to 8% PIK Or cost in USD-equivalent |
|||
| CASH SWEEP | Beginning 31 December 2026, 50% of unrestricted cash greater than \$350m to be used to redeem New Priority Secured Debt |
| KEY TERMS | |
|---|---|
| MANDATORY REDEMPTION ON ASSET SALE |
• In case of partial or total sale of V.tal shares: - 100% of the net proceeds from such sale to redeem New Priority Secured Debt - 100% of the residual value after the full prepayment of New Priority Secured Debt to redeem Roll Up Debt In case of partial or total sale of ClientCo shares (subject to a minimum sales price to be agreed): - 100% of the net proceeds from such sale to redeem New Priority Secured Debt (if any) - 60% of the residual value after the full prepayment of New Priority Secured Debt to redeem Roll Up Debt In case of sale of any other asset constituting Collateral (e.g., Real Estate): - On asset sales up to BRL200mm, 100% of the proceeds are available to the company - On asset sales from BRL200mm to BRL400mm, 50% of the net proceeds from such sales to redeem New Priority Secured Debt and/or Roll-Up debt - On asset sales above BRL400mm, 100% of the net proceeds from such sales to redeem New Priority Secured Debt and/or Roll-Up Debt |
| COLLATERAL | New Priority Secured Debt Day 1: Fiduciary Lien on 100% of Oi's V.tal shares (subject to regulatory/contractual approvals), 1st or highest lien available on fiber, B2B (Oi Soluções) receivables, fiduciary lien over ONTs, real estate (according to regulatory/contractual limitations), rights to proceeds from MobileCo arbitration, and proceeds from the sale of Tahto and Serede Upon creation of ClientCo: Fiduciary Liens on 100% of ClientCo shares, releasing the above collateral other than V.tal shares and real estate $\bullet$ EoD: 100% of proceeds of any Collateral to be applied to discharge of the New Priority Secured Debt, in 1 st Lien Roll-Up Debt Day 1: Fiduciary Lien on 100% of Oi's V.tal shares (subject to regulatory/contractual approvals), 2 nd or highest lien available on fiber, B2B (Oi Soluções) receivables, fiduciary lien over ONTs, real estate (according to regulatory/contractual limitations), rights to proceeds from MobileCo arbitration, and proceeds from the sale of Tahto and Serede Upon creation of ClientCo: Fiduciary Liens on 90% of ClientCo shares, releasing the above collateral other than V.tal shares and real estate EoD: 100% of proceeds of any collateral, excluding ClientCo shares, to be applied to discharge of the Roll-up Debt, in 2 nd Lien EoD: 100% of proceeds of 90% of ClientCo shares to be applied to discharge of the Roll-up Debt, in 2 nd Lien A&E Reinstated Debt • 3 rd Lien on 100% of Oi's V.tal shares (subject to regulatory/contractual approvals) |
| EoD: 100% of proceeds of Oi's V tal shares to be applied to discharge of A&E Debt, in 3rd Lien 8 |
| KEY TERMS | |
|---|---|
| AGGREGATE PRINCIPAL AMOUNT |
USD275mm - Tranche 1 Notes: USD200mm in March/2023 - Tranche 2 Notes: USD75mm, in June/2023 subject to certain CPs (1) |
| INTEREST | 8% cash and 6% PIK, payable monthly $\bullet$ |
| UPFRONT FEE | 3% payable pro rata in PIK on the Closing Date |
| COMMITMENT FEE | 3% of the aggregate amount of the Tranche 2 Notes, payable pro rata in PIK |
| EXIT FEE | Variable with time, starting at 2.5% up to 6 months, ramping up to 3.0% up to 12 months and 3.5% beyond 12 months all the way to maturity $\bullet$ |
| TICKING FEE | 1% additional fee (rate step up) after 6, 9 and 12 months payable in PIK ٠ |
| AMORTIZATION | Bullet |
| TENOR | 15 months |
| COLLATERAL | Fiduciary lien over 95% of the V.tal shares (subject to existing restrictions) owned by the Company from Closing |
| OTHERS | Default Rate: additional 7.0% per annum, payable monthly in cash, in an Event of Default $\bullet$ Mandatory Prepayment Offer: net cash proceeds from certain claims up to the full amount outstanding $\bullet$ Breakup Fee of 10% after disbursement in case of cancellation by Company $\bullet$ |
Due to the changes in the business model and footprint, the sale of Mobile and InfraCo assets in 2022, and implementation of the New Business Model with V.tal — which generates organizational changes and new revenue and expense dynamics — it is not possible to accurately generate proforma historical figures of the new Oi…
…nonetheless, the figures set forth in the next slides were estimated through the 2020 and 2021 Consolidated Income Statement, subtracting the Mobile and InfraCo Income Statements…
…to do so, the following assumptions were made:
Growth of Total Costs driven by new contract with V.tal beginning in Jun/2022. Excluding that effect, Opex reduced 17% between '20 and '22, despite inflation, due to efficiency initiatives
1-Capex/Sales excluding Fiber Network Rollout expenses. Including those expenses: 36.6%.
.
Oi
| YoY% | CAGR | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| R\$ million | 2020 | 2021 | 2022P | 2023E | 2024E | 2025E | 2026E | 20/21 | 21/22P | 22P/23E | 23E/24E 24E/25E 25E/26E | 22P/26E | ||
| Net Revenues | 10,668 | 10,222 | 10,383 | 11,181 | 11,808 | 12,980 | 13,305 | $-4.2%$ | $1.6\%$ | 7.7% | 5.6% | 9.9% | 2.5% | 6.4% |
| Total Expenses | 9,066 | 8,225 | 9,768 | 11,324 | 11,182 | 12,499 | 10,563 | $-9.3%$ | 18.8% | 15.9% | $-1.3%$ | 11.8% | $-15.5%$ | 2.0% |
| Revenue-related | 1,747 | 1,660 | 1,515 | 1,360 | 723 | 730 | 726 | $-5.0%$ | $-8.7%$ | $-10.2%$ | $-46.8%$ | 0.9% | $-0.4%$ | $-16.8%$ |
| Plant-related | 2,788 | 2,653 | 5,089 | 6,986 | 7,776 | 8,580 | 6,994 | $-4.8%$ | 91.9% | 37.3% | 11.3% | 10.3% | $-18.5%$ | 8.3% |
| Commercial | 1,232 | 1,348 | 1,036 | 726 | 656 | 778 | 1,047 | 9.5% | $-23.1%$ | $-29.9%$ | $-9.6%$ | 18.6% | 34.6% | 0.3% |
| SG&A | 2,531 | 1,801 | 1,957 | 1,674 | 1,560 | 1,586 | 1,503 | $-28.8%$ | 8.7% | $-14.5%$ | $-6.8%$ | 1.6% | $-5.2%$ | $-6.4%$ |
| Other | 768 | 763 | 170 | 578 | 466 | 826 | 292 | $-0.7%$ | -77.6% | 239.1% | $-19.3%$ | 77.1% | $-64.6%$ | 14.4% |
| EBITDA | 1,602 | 1,997 | 615 | $-143$ | 626 | 481 | 2,742 | 24.6% | $-69.2%$ | $-123.2%$ | $-538.0\%$ | $-23.1%$ | 470.0% | 45.3% |
| EBITDA Margin | 15.0% | 19.5% | 5.9% | $-1.3%$ | 5.3% | 3.7% | 20.6% | $4.5$ p.p. $-13.6$ p.p. | $-7.2 p.p.$ | 6.6 p.p. | $-1.6 p.p.$ | 16.9 p.p. | 3.7 p.p.' |
$\bullet$
| LOBS | |
|---|---|
| $LOG 0 - LEGACY$ | LOB 4 - MANAGED SERVICES |
| $LOB1 - UC6C$ | LOB 5 – CLOUD |
| LOB 2 - SDWAN | LOB 6 - DIGITAL PRODUCTS |
| LOB 3 – SECURITY |
| LOBS | |
|---|---|
| LOB 0 - LEGACY | LOB 4 - MANAGED SERVICES |
| LOB 1 - UC&C | $LOG 5 - CLOUD$ |
| LOB 2 - SDWAN | LOB 6 - DIGITAL PRODUCTS |
| LOB 3 – SECURITY |
Our clients
.
oi
| LOBS | |
|---|---|
| $LOG 0 - LEGACY$ | LOB 4 - MANAGED SERVICES |
| $LOB1 - UC6C$ | $LOG 5 - CLOUD$ |
| LOB 2 - SDWAN | LOB 6 - DIGITAL PRODUCTS |
| LOB 3 - SECURITY |
LOB 1: UC&C | Unified Communications & Collaboration solutions, with a complete portfolio for all market segments, complemented by an omnichannel messaging hub portfolio for digital interactions
PLATFORMS
+500%
GROWTH YTD $22 \times 20$
LOB 2: SDWAN | Fiber internet and managed network solutions, with the largest sd-wan portfolio in the market, together with Wifi6 and managed Wi-Fi solutions
oi
▸ INCIDENT CORRELATION
R\$ MM
LOB 4: Managed Services | Intelligent management of all service solutions, from concept to delivery, professional services, management outsourcing, dedicated NOC and SOC, with the GIS360 portfolio
RECURRING SALES FUNNEL
AGING FUNNEL
R\$ MM
R\$ MM MONTHLY
7 PARTNERS # CLIENTS
~77
+200%
Reseller | Equipment resale allows for aggressive discounting with equipment providers, and brings flexibility on the Capex to Opex migration on customer projects
OFFER OF AN ARRAY OF MARKET LEADERS AS EQUIPMENT PARTNERS
11%
Sep-22
R\$ million
| Year | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Take or Pay (Onerous Liability) |
407 | 429 | 444 | 307 | 317 | 326 | 336 | 346 | 356 | 367 | 263 | 133 | 137 |
| Year | 2036 | 2037 | 2038 | 2039 | 2040 | 2041 | 2042 | 2043 | 2044 | 2045 | 2046 | 2047 | 2048 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Take or Pay (Onerous Liability) |
142 | 146 | 150 | 155 | 159 | 164 | 169 | 174 | 179 | 185 | 190 | 196 | 184 |
| From 23-48 | 6,362 |
|---|---|
| From 26-48 | 5,082 |
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