Presenting their debt-recovery plan for Nochi Dankner’s IDB Development Corporation in Tel Aviv District Court Sunday, bondholders said they sought to convert close to NIS 3.4 billion of the holding company’s NIS 6 billion debt to equity.
The plan would turn the bondholders into the controlling shareholders of a financially healthy company, with a reasonable level of debt and leveraging, the bondholders representatives, which include the Psagot Investment House, the York Fund of the United States and Phoenix Insurance, told the court.
IDB Development, a closely held company near the top of the Dankner pyramid, owes about NIS 3.7 billion to bondholders and more than NIS 2 billion to banks. By taking control of the company, the creditors would be severing Dankner from nearly all of his vast array of holdings, which include Cellcom Israel and Super-Sol.
The petition to the court, completed after several months of work, provided more detail than known previous about the extent of IDB Development debt. Bank Hapoalim is the biggest bank creditor, with exposure of some NIS 770 million. Next is the French bank BNP with NIS 313 million, which is due in 2014. Mizrahi-Tefahot has loans with IDB Development totaling NIS 193 million.
The bondholders’ recovery program envisages converting 55% of IDB Development’s debt to equity, with bondholders divvying up the shares based on the proportion of the debt they is owed. The balance of the bond debt would be reissued, some NIS 2.6 billion, in bonds carrying interest of 7% due in 2019-2020.
If the plan goes forward, it would be unprecedented in the Israeli capital market in terms of its size and significance. IDB Development would have no single controlling shareholder.
For now, however, Judge Eitan Orenstein has scheduled a hearing on the plan for next Sunday at 8:30 A.M. with both sides present. Bondholders said they will not seek to have a trustee appointed to operate IDB Development, rather someone to ensure that no creditor receives preference over another.
“IDB Development is now in a state of insolvency,” the appeal said. “As of today, the extent of the company’s obligations exceeds its assets (according to their market valuation) by a considerable amount, perhaps an unprecedented amount, of NIS 1.5 billion. The company’s situation does not present a reasonable risk that its creditors, that is its bondholders, will get the full extent of the debt owned them.”
The bondholders said that as part of their plan they aim to simplify IDB’s pyramid structure in line with the recommendations of the government’s business concentration committee of last year. They also plan to replace some of the executive staff, who will “look out first and foremost for the interests of the company and not see the interest of the controlling shareholders as above all.”
The bondholders asserted that management compensation was excessive, amounting to millions of shekels every month.
In response, IDB Development noted that its balance sheet had cash of $ 1.1 billion sufficient to serve its debts to the first quarter of 2014, and called the plan an attempt to unfairly wrest control of the company from IDB Holding Corporation, which is controlled by Dankner.
“The appeal to the court is a far-reaching step by cynical elements of the IDB Development bondholders representatives in a bid to take specific assets of the company for a mess of pottage, and thwart any attempt to reach an agreement with parent company IDB Holding,” it said in a statement.
It said IDB Developemnt was working to improve its liquidity position in order to meet all its debt obligations. It cited the sale of Clal Industries for NIS 1.5 billion as among the steps it has taken in this direction. It said it would provide the court with what it said is more accurate valuations of its assets, and a better picture than the bondholders representatives had of its ability to meet future repayments.