Telefonica del Peru filed a voluntary restructuring proceeding before the National Institute for the Defense of Competition and Protection of Intellectual Property (INDECOPI) on 24 February, according to court documents.

In the US, the telecommunications provider and subsidiary of Spain’s Telefonica requested Chapter 15 protection to obtain recognition of the Peruvian case as the foreign main proceeding.”

The Chapter 15 petition was filed at the US Bankruptcy Court for the Southern District of Texas, and the case was assigned to Judge Alfredo Perez.

A hearing to analyze an emergency motion for provisional recognition was scheduled for today (26 February), at 4pm (CT).

Debtwire Dockets: Telefonica del Peru

The company

Telefonica del Peru is a telecommunications company offering a wide range of services, including local, domestic and international long-distance services, broadband services, cable television services, interconnection services, prepaid and postpaid mobile services and cellphone sales throughout Peru, for more than 30 years.

In 2024, the company generated revenue of around USD 1.6bn, according to the petition.

It has also been a pioneer in the deployment of fiber optics in Peru, providing access to this technology to more than 4.4 million homes, it wrote.

Telefonica del Peru is one of Peru’s largest providers, serving approximately 13 million customers, with more than 3,600 employees in the country. Its infrastructure supports approximately 33.05% of Peru’s internet connections and almost a third of Peru’s mobile connections.

The largest shareholder is Telefonica Hispanoamerica, which holds 99.3% of the company’s equity. The remaining shares are traded on the Lima Stock Exchange.

Telefonica Hispanoamerica is a subsidiary of Spain-based telecommunications company Telefonica SA, which also has operations in Brazil, Argentina, and Chile and has substantial operations in Colombia, Ecuador, Mexico, Nicaragua, Panama, Uruguay and Venezuela.

Telefonica entered the Peruvian market in 1994 with the acquisition of two government-owned telecommunications companies through a privatization process. Telefonica de Peru, however, operates independently of its parent but receives technical, operational and administrative support from Telefonica Hispanoamerica.

Telefonica Peru provides services pursuant to concessions granted by the Peruvian government through concession agreements.

The debt

As of the Peruvian petition date, the company had aggregate assets of approximately PEN 9.4bn (USD 2.5bn) and liabilities of PEN 8.9bn, according to the filing.

Among the liabilities, USD 603.1m is related to obligations under one international bond and seven series of domestic bonds:

(i) 7.375% senior global notes issued in aggregate principal amount of PEN 1.7bn, maturing 10 April 2027, with Citibank as trustee.

(ii) 5.5% domestic notes in aggregate principal amount of PEN 105m, maturing April 2025;

(iii) 7.2813% domestic notes issued in aggregate principal amount of PEN 80m due October 2026;

(iv) 3.625% domestic notes, in aggregate principal amount of PEN 108m, maturing July 2027;

(v) 2.875% domestic bonds totaling PEN 85m, maturing April 2028;

(vi) 3.125% domestic notes in aggregate principal amount of PEN 83m, maturing May 2028;

(vii) 3.1875% domestic notes totaling PEN 34m, maturing in July 2028;

(viii) 3.0938% notes amounting PEN 77m, due May 2030;

Source: court documents

The descent

When Telefonica del Peru tapped the international market in April 2019 with the  PEN 1.7bn global amortizing 2027 bond, it was one of the few Latin American corporate borrowers offering investors global PEN-denominated bonds, and included a pickup of more than 200bps spread pickup over the Peru sovereign.

However, media reports circulated just a few months later saying the telecom provider would be required to pay up to PEN 5bn (USD 1.51bn) related to a tax case, following a ruling from the Peruvian Supreme Court. At the time, Telefonica del Peru disputed the amount, claiming the potential amount to be paid would be less than PEN 700m.

Meanwhile, the debtor’s operational metrics and market share have persistently fallen in recent years due to increased competition, the COVID-19 pandemic, and other operational challenges, it wrote in the Chapter 15 filing.

“These difficulties have led to the company’s deteriorating liquidity position, resulting in downgrades to its credit ratings and creating uncertainty regarding its ability to refinance the first installment of its outstanding notes due in April 2025,” the debtor said.

“In addition, the company will likely have other near-term significant tax obligations related to the final settlement of tax disputes,” it wrote.

A Supreme Court ruling in January 2023 established that Telefonica del Peru was required to pay more than PEN 1.3bn to the tax authority, SUNAT, related to taxes in 2000 and 2001.

To fund this liability, the company’s board approved a loan from its largest shareholder, Telefonica Hispanoamerica for USD 209.5m that matured in December 2024. It also authorized Telefonica del Peru to obtain bank financing for up to USD 462m and secure medium-term bank letters of credit for USD 451.6m to cover guarantees requested by SUNAT.

“Significant competition” in each of its markets in recent years has contributed to its financial crisis.

As of 31 December 2018, 17 total concessions had been granted for telecommunications service to a number of providers operating in Peru, including to the company’s main competitors in the mobile sector, Entel and Bitel.

As a result, the debtor’s revenue faced a significant drop, increased its commercial expenses, and altered the dynamics of the market.

“Since 2019, the company’s market share in the mobile market fell from 35.8% to 26.6%,” it wrote.

In addition, unauthorized copying, distribution, and piracy of programming and films interfere with the company’s cable television services, and the debtor has expended substantial resources to protect its content.

Since 2019, the company’s annual revenue has decreased from PEN 7.88bn to PEN 6.02bn, representing an average annual decrease of 6%.

“The difficulty of adjusting operating expenses to the new size of the business, including network, commercial and labor expenses, has also affected the company’s profitability,” it said.

On 14 February, Telefonica del Peru announced its intention to start an in-court restructuring. International bondholders have organized with Moelis and Akin Gump.

The case

On 24 February, Telefonica del Peru commenced the Peruvian proceeding with the filing of a voluntary insolvency proceeding under the Peruvian Insolvency Law, with INDECOPI “to stabilize its business, continue providing public telecommunications services to its approximately 13 million customers, and provide a forum for negotiations with its creditors with respect to a value-maximizing restructuring solution.”

However, until INDECOPI—through the Insolvency Proceedings Commission—makes a formal determination as to whether the company has satisfied the requirements to proceed with the request, the debtor is vulnerable to adverse creditor action.

According to the company, the determination may take up to 90 days, and it takes an additional three or four weeks to publish its decision in the country’s Insolvency Gazette (Boletín Concursal).

Therefore, the Peruvian proceeding is in an interim phase, and the mere act of filing does not automatically result in a stay of creditor actions.

“The Peruvian proceeding aims to protect against the risk of irreparable harm that may result by creditors taking actions against the Chapter 15 debtor,” the company wrote.

In support of the Peruvian proceeding, the petitioner commenced this Chapter 15 case to protect its assets in the United States, given a significant portion of the company’s debt is US-law governed, according to the filing.

“In particular, holders of NY notes [the global PEN-denominated bond] may claim the NY notes have been automatically accelerated by the filing of the Peruvian petition and commence litigation against the Chapter 15 debtor in the United States,” the company said.

Such litigation could also cause disruption to the debtor’s business and the Peruvian proceeding.

As a result, Telefonica del Peru submitted the recognition of the Peruvian proceeding as the foreign main proceeding, as the center of main interests (COMI) for the Chapter 15 Debtor is in Peru.

The advisors