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Nochi Dankner was out to calm irate Azorim bondholders yesterday, after credit rating agency Maalot surprised them last week, when it announced a downgrade on Azorim Properties bonds. Maalot had discovered the funds actually went to a loan that helped Dankner's privately-held Ganden take over IDB Holdings, a move prohibited by a clause in the bond instructions.

A sigh of relief could be heard at Ganden yesterday, after phone reactions from the managers at institutional investors to Dankner's offer of early repayment of the bonds were relatively positive.

Dankner's new offer was sent simultaneously yesterday to the press and to the offices of provident funds and insurance companies that hold the bonds.

The anger was mostly for the loan Azorim granted Ganden, allowing Ganden to come up with requisite equity for the IDB takeover. Maalot and the bondholders found out about the use for the money after the fact. Maalot said the NIS 250 million loan damaged Azorim's financial stability, the guarantees on the private bonds Nochi sold, and its credit rating.

In efforts to prevent bondholders from demanding immediate repayment or legal proceedings, and in an effort to reduce the serious image damage, Dankner sent a letter yesterday offering early repayment of the NIS 113 million May 2002 bond series. For institutionals who opt to keep the paper, Nochi sweetened the pot with a 1.4 percent interest rate hike. He stated in the letter that the claims against him stemmed from a clause in the bond instructions that guaranteed the right to early repayment if Azorim decided to buy shares in IDB.

Dankner emphasized that the company's and its legal advisors' position is that the charges published are baseless, and that the proffer stems from his desire to maintain cooperation and close relations with the financial market. Nochi controls some of the largest companies in Israel, the backbone of Israel's money markets, and wants to continue using institutional financing. He was, therefore, extremely concerned by the negative ramifications of the bond drama.

Ganden's shareholders put $15 million into the company to facilitate the repayment.

The institutionals remained a little uncomfortable yesterday in part because the early repayment was offered only to Series 4 bondholders, and not to Series 3. Series 4 was deemed more problematic due to two clauses in the instructions. One prohibited Azorim from buying into IDB, which Dankner circumvented by using the funds to lend to Ganden. The other clause guaranteed Series 4-holders the right to demand repayment in May 2004. If the bondholders hadn't received what they wanted now, they would have used the second option anyway.

One investment company manager said yesterday that from now on, corporate bonds from any companies associated with Nochi Dankner or IDB would be examined in a different light, with the understanding that it could be a ruse for some other financial shenanigans.