U.S. hedge fund York Capital eyes control of Dankner's IDB
New York-based hedge fund has been buying up bonds of IDB Development Corporation to the tune of NIS 800 million par value.
Is Nochi Dankner on his way to losing control of the IDB group?
TheMarker has learned that York Capital Management, the New York-based hedge fund, has been buying up bonds of IDB Development Corporation to the tune of NIS 800 million par value.
The purchases, which have been made over the past several months, now make York the single biggest holder of IDB Development bonds, with about 20% of the total.
Together with other institutional investors, York is planning to use its role as chief creditor to wrest control of IDB Development from Dankner, or at least become a partner with him on controling the group, say capital market sources who have met with York.
Among the other big holders of IDB Development debt are Phoenix, the insurance group controlled by Yitzhak Tshuva's Delek group, Psagot Investment House and Harel insurance.
Negotiations about a debt accord between IDB and bondholders are likely to get underway after October 25 when bondholder representatives meet separately themselves.
In recent days York executives, led by local representative Jeremy Blank, have been meeting with bondholders to interest them in their plans and recruit them as allies. York would like IDB debt to be swapped for equity.
York was formed in 1985 to specialize in distressed debt, the debt of companies in financial trouble. Since then, it has expanded its activities to other kinds of securities investment as well as buyouts, including Psagot, which it later sold to the British fund Apax Partners. Today, about half the $15 billion it has under management is distressed debt.
York declined to comment on TheMarker's report.
Doubts on TASE
York has been paying on average about 50 agorot for every shekel of bonds it has accumulated, reflecting the huge discount the debt trades at on the Tel Aviv Stock Exchange due to doubts about the company's ability to repay. As a result, York's actual outlay for the bonds it has bought amounts to just NIS 400 million.
IDB Development sits just below IDB Holding Corporation in the group's pyramid and holds its key assets, including Cellcom Israel, Clal Insurance, Super-Sol, Koor Industries and Property & Building.
IDB Development is wholly owned by IDB Holdings, which in turn is controlled by Dankner's privately held Ganden Holdings.
IDB Development has about NIS 4.4 billion in bonds outstanding. It owes another NIS 2.1 billion to banks and other financial institutions. That means its total debt is about NIS 6.5 billion, compared with total assets of between NIS 4.5 billion and NIS 5 billion, including cash. IDB says it has enough cash to meet repayments until the second half of 2013.
York is not believed to hold any bonds issued by IDB Holding.
York's strategy is for IDB to sell assets, leaving a trimmed-down business group, while negotiating with banks and bondholders to reschedule repayments so as to reduce debt and leverage.
York would apparently prefer IDB's current management to undertake the financial recovery of the group, but it has indicated to other bondholders that it will not be deterred from trying to gain control of the group with other bondholders if need be.
In fact, Dankner has been pursuing much the same strategy as York is contemplating, in the past two years seeking control of shares in Makhteshim Agan, Clal Industries, Ham-Let and Maxima, and has held talks about selling Clal insurance and bringing in an equity partner to Super-Sol.
York would likely be more aggressive is disposing assets, including IDB companies such as Given Imaging, Elron, Koor and perhaps Property & Building. That could bring down the debt load of IDB Development's Discount Investment Corporation unit to less than NIS 2 billion from NIS 6 billion now, according to York's projections.
The fund also wants to remove layers from the IDB pyramid to cut management costs.
As the next part of its strategy, York is weighing making a general offering for the 25% of Discount Investment now held by the public and traded on the Tel Aviv Stock Exchange. The current market value of the public's stake is just NIS 177 million.