The bankruptcy filing of Oi SA, the largest in Brazil’s history, is reverberating through the nation’s strained financial industry as investors tally the potential hit to creditors.

Even as Egyptian billionaire Naguib Sawiris said he’s prepared to invest in the wireless carrier, Monday’s bankruptcy filing is likely to leave Banco do Brasil SA, Itau Unibanco Holding SA and others with steep losses on their holdings of Oi debt and trigger payments on $14 billion of derivatives contracts that are designed to pay out in an event of a default. Shares of Banco do Brasil slumped 4.5 percent.

The unrelenting two-year recession is wreaking havoc on Brazilian corporations, which have been beaten down by high interest rates, lower commodity prices and a weaker currency. Bankruptcy filings doubled in May to 184 after rising 55 percent last year, according to data provider Serasa Experian. High-profile bankruptcies like that of oil-rig venture Sete Brasil Participacoes SA have forced banks such as Itau and Banco Bradesco SA to dramatically increase their reserves.

Oi sought protection from creditors on 65 billion reais ($19 billion) in debt after failing to reach a restructuring agreement following a long saga of mergers and leadership changes. Brazil’s fourth-biggest wireless company aims to keep serving customers, the company said in a filing Monday. It also filed for Chapter 15 protection in the U.S. on Tuesday.

Oi blamed Aurelius Capital Management and other hedge funds for its decision to seek protection from creditors, according to papers filed in Manhattan bankruptcy court Tuesday. “The threat of additional adverse actions by creditors and the need for a centralized forum to facilitate its reorganization compelled the company to begin preparations for a formal judicial restructuring,” Oi said. Aurelius has been battling Oi in court over the phone carrier’s debt-related transactions.

The filing sent the Ibovespa down, with Banco do Brasil contributing the most to the equity index’s drop. Oi preferred shares fell 18 percent. State-owned banks Banco Nacional de Desenvolvimento Economico e Social and Caixa Economica Federal, which aren’t traded, are also among Oi’s top creditors. Telemarketing services provider Contax Participacoes SA, which relies on Oi for 39 percent of its revenue, dropped to a five-month low.

Oi was under pressure to seek protection because it has a 231 million euro-denominated ($261 million) bond maturing in almost a month. The filing comes 10 days after Bayard Gontijo resigned as chief executive officer after disagreeing with some board members on how to proceed on negotiations with debt holders. 

Talks with creditors stalled last week after some board members rejected a plan by bondholders to swap debt for equity, giving them 95 percent of the company. Oi’s board decided to move ahead with the filing after determining that the company was unlikely to get approval from shareholders and debtholders for a voluntary exchange offer in time to make the next debt payment, according to two people familiar with the matter.

Oi has about $1 billion in net outstanding credit default swaps, the data show. Typically that is the maximum that could be paid out, after accounting for offsetting trades.

Needs Consent

Brazil’s telecommunications regulator Anatel said Oi needs its consent to sell many of its assets or use them as collateral. The agency will be monitoring the company’s operations to “protect the user,” according to an e-mailed statement. Anatel, which controls licenses to operate telecommunications networks, is unlikely to intervene if Oi can continue to provide good service, said the people, who asked not to be identified because the information is private.

The 65 billion-real figure for Oi’s debt in its bankruptcy filing includes the company’s 50 billion reais in bonds and bank loans, plus amounts owed to suppliers and other accounts payable.

BM&FBovespa, the Brazilian exchange, put special procedures in place for Oi shares Tuesday. Trading started at 11 a.m. local time in Brazil. Oi stock will be removed from the IbrX 100 and the Small Caps index. Oi dollar-denominated notes were suspended in the Luxembourg exchange Tuesday.

“I don’t see a solution for Oi,” said Adeodato Volpi Netto, the head of capital markets at Eleven Financial Research, in a phone interview. “The company will be sliced and sold in pieces as possible. There won’t be enough cake for everybody.”

Oi’s top shareholders include Pharol SGPS SA -- the Portuguese holding company of former Portugal Telecom shareholders -- along with the Ontario Teachers’ Pension Plan, the state-owned development bank BNDES and BlackRock Inc., according to the phone company’s website.

The bankruptcy filing caps off a chaotic period in Oi’s history. Marco Schroeder was named to replace Gontijo earlier this month, becoming Oi’s sixth CEO in five years. Gontijo took over in October 2014, replacing Zeinal Bava after the troublesome merger with Portugal Telecom, which contributed to Oi’s ballooning debt. He focused on improving the company’s operations in 2015 and cut a deal with Russian billionaire Mikhail Fridman to help Oi finance a merger with Telecom Italia SpA’s Brazilian unit. That agreement fell through in February.

Despite all the challenges, Sawiris, the Egyptian billionaire, said he’s prepared to invest in Oi and also expressed interest in combining the company with the Telecom Italia unit. “Oi needs a shareholder with a strong telecoms background to solve their operational problems in addition to their financial ones,” Sawiris said by phone after the bankruptcy filing.

Negative Cash Flow

Oi had forecast it would finish the second quarter with total debt of 48 billion reais, with negative cash flow after interest of 2.5 billion reais. Cash flow after interest and before amortization is projected to be negative 7 billion reais between 2016 and 2018, according to the documents.

“You had an over-leveraged entity with poor operational performance in a recessionary environment,” Jorge Piedrahita, chief executive officer at brokerage Torino Capital in New York, said in a phone interview. “It was a matter a time.”

Oi also operates part of the country’s landline phone system, which has proven onerous -- the company has a legal commitment to expand and maintain the obsolete network. It had about 5 billion reais of interest expenses in 2015, far more than the roughly 2.7 billion reais of operating income it had available to pay those costs, according to data compiled by Bloomberg.

The phone carrier got its start as Tele Norte Leste, a company formed through the merger of 16 state-owned companies when Brazil’s telecommunications industry was privatized in 1998. The company introduced wireless service in 2002. In 2010, it merged with Brasil Telecom Participacoes SA in a $3.52 billion deal, expanding its geographic coverage in Brazil but ballooning its debt.