Cabinet moves to regulate bondholder haircuts
Bill would require companies to obtain court and government approval for any debt arrangement under which creditors would receive 90% or less of what they are owed.
The Ministerial Committee for Legislation resolved Sunday to support a bill that would require companies to obtain court and government approval for any debt arrangement under which creditors would receive 90% or less of what they are owed. On Wednesday, the bill will be raised for a preliminary reading and vote in the Knesset plenum, where it is expected to pass.
The so-called haircuts bill was proposed by MKs Zahava Gal-On (Meretz ) and Yitzhak Vaknin (Shas ), and was prompted by the recent trend of deep-pocketed businessmen who seek to resolve their insolvency issues by trimming their repayments to their bondholders.
Under the bill, a trustee would be appointed to any company looking to give their creditors a haircut exceeding 10%. The trustee would supervise the debt arrangement process, while the final deal would require the approval of the Finance Ministry's capital markets commissioner and the Israel Securities Authority.
"I welcome the cabinet's decision to support the haircuts bill," Gal-On said after the committee meeting.
"A vote for the bill means an end to the institutionalized fraud committed against people's retirement savings by big businessmen," she said, pointing to the "dramatic increase" in debt arrangements in Israel, which have exceeded NIS 15 billion in the past three years alone.
"The wholesale approval of debt arrangements on such a large scale, at a time when the economy is expanding, shows the extent to which the market is broken and sheds light on structural failures when it comes to representing the public interest," Gal-On said.
Some of the more high-profile debt arrangements include the deal struck by Africa Israel, which reorganized NIS 8 billion in bond debt, making it the largest debt settlement in Israel's history.
Zim Integrated Shipping Services also reached a debt agreement reorganizing NIS 1.33 billion in bond debt.