Some of the world’s biggest bond-fund managers, including Pimco and Blackrock, are bracing for a new phase in the rapid decline of Brazilian businessman Eike Batista’s empire: default.

September 30, 2013, 7:47 p.m. ET

Brazilian Magnate’s Woes May Jolt Bond Funds

Big Holders Include Pimco, BlackRock

EMILY GLAZER AND LUCIANA MAGALHAES

Some of the world’s biggest bond-fund managers, including Pacific Investment Management Co. and BlackRock Inc., BLK -0.12% are bracing for a new phase in the rapid decline of Brazilian businessman Eike Batista‘s empire: default. A group of six firms, including BlackRock and Allianz SE‘s ALV.XE -1.32% Pimco hold roughly half of the $3.6 billion in dollar-denominated debt issued by OGX Petroleo e Gas Participacoes SA, OGXP3.BR -25.00% Mr. Batista’s flagship oil company, according to people familiar with the situation.The other four firms are Loomis, Sayles & Co.; Lord Abbett & Co.; Ashmore Group ASHM.LN +0.88% ; and Spinnaker Capital Group, these people said.

BlackRock and Pimco declined to comment. Loomis Sayles, Ashmore and Spinnaker didn’t respond to requests for comment. Lord Abbett holds less than 5% of the $3.6 billion of debt, according to a person close to that money manager. OGX declined to comment.

These big-name fund managers would suffer if, as expected, OGX misses an interest payment that is scheduled to take place Tuesday. The company plans to skip the payment as it seeks to make progress on debt-restructuring talks, according to people close to OGX.

The stakes are high for OGX’s creditors, who already have seen prices on the bonds tumble this year. Any default is likely to be perceived as the opening salvo in a battle that pits fund managers looking to recoup their losses against Mr. Batista’s desire to hold on to as much of his crumbling empire as possible.

In its heyday, Mr. Batista’s industrial conglomerate was emblematic of investors’ high hopes for Brazil, the world’s sixth-largest economy. Just two years ago, Brazil was posting rapid consumer-led growth among a rising middle class.

Now, those hopes have taken a knock. OGX’s troubles stem partly from operational missteps, according to analysts, and the company is experiencing a cash crunch. Prices on the $1.06 billion of bonds that mature in 2022 have fallen from 87 cents on the dollar at the start of the year to 16.5 cents on Monday, according to MarketAxess.

It is the interest payment on these bonds that OGX plans to skip, a total of $44.5 million. The company also issued another batch of bonds, with a face value of $2.6 billion, that mature in 2018. The next interest payment on the 2018 bonds, about $110 million, is scheduled for December. A default by OGX on the $1.06 billion in debt maturing in 2022 would rank as one of the largest among Latin American companies in recent times.

Although bondholders and market experts have been anticipating a default, advisers and lawyers for the creditors continued to plot out their next steps, according to people familiar with the situation.

OGX needs up to $500 million to meet its current obligations, and banks so far have appeared unwilling to lend the oil company any money, according to the people familiar with the situation.

According to the bond prospectus, OGX has 30 days to make up for any missed interest payment before any penalties kick in. The company is taking advantage of the grace period to wrap up talks on restructuring its debt, according to a person close to OGX.

Another option for OGX is a filing for bankruptcy protection in Brazilian court, which could take at least six months and could result in OGX’s liquidation.

While OGX and some of its creditors have taken steps toward a debt restructuring, talks in September were disrupted when OGX’s chief financial officer left the company. Around the same time, restructuring bankers at Lazard Ltd. LAZ -1.53%were tapped to work in tandem with Blackstone Group BX -0.44% LP.

The sheer sizes of Pimco, BlackRock and the other bond-fund managers mean that they often turn up as distressed creditors of companies around the world.

Not all investors have stayed on.

The Ontario Teachers’ Pension Plan was an early investor in Mr. Batista’s Brazilian empire, at one point owning close to 20% of logistics firm LLX Logistica SA and mining company MMX Mineracao e Metalicos SA, said Brian Gibson, a former senior vice president of the fund. Mr. Gibson is retired now.

Mr. Gibson said he sold by 2007 because the valuations were so high, he said in an interview.

At their peak, the valuations of Mr. Batista’s companies were so high that it was “pretty hard to justify keeping them,” Mr. Gibson added.

Mr. Gibson said he was prompted to begin selling when he grew concerned about changes in Brazilian government policy that weren’t in the long-term interest of the economy. The pension plan made about “ten figures” in U.S. dollars in its investments with Mr. Batista, spokeswoman Deborah Allan said