Though it has the wherewithal, Elbit Imaging will not be making payments to short-term bondholders yesterday, the board decided. Meanwhile, the company will not be asking its subsidiary, Plaza Centers, for a scheduled dividend payment.
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Elbit's B1 series bonds tumbled 25 percent in price on Tuesday following the announcement, whiel its B2 bonds fell 7%.
Standard and Poor Maalot downgraded Elbit Imaging debt five notches, from B to CC – one notch above default. After a 4% drop in Tel Aviv on Tuesday, Elbit Imaging's market cap shrank to NIS 147 million - from NIS 6 billion in 2007.
The partial default follows fierce opposition by Elbit Imaging’s long-term bondholders to paying the holders of the short-term bonds. They feel payment would constitute giving preferential treatment to some creditors over others, based on the suspicion that the long-term bondholders wouldn't get their money.
Preferring to avoid lawsuits, Elbit’s board chose not to make the upcoming payment to the short-term bondholders. But in order to avoid complete default, Elbit will pay the holders of its B1 and B2 series bonds NIS 15 million in interest, and will soon begin negotiating a debt arrangement.
On February 20, Elbit Imaging - controlled by Moti Zisser - is scheduled to pay the B1 and B2 bondholders NIS 82 million – some NIS 67 million in principal and about NIS 15 million in interest. That is a trifling sum compared with the NIS 2 billion that the group owes its bondholders.
In addition, the company owes NIS 300 million to Bank Hapoalim and Bank Leumi as well as around NIS 1.2 billion to subsidiary Plaza Centers.
In addition, in light of the threatening letters Elbit Imaging received from high-ranking employees and members of the board of directors of Plaza Centers, the board decided, for now, not to ask for the dividend payment of 30 million euros Elbit Imaging was counting on to buoy it up. Non-payment of the dividend could give Plaza Centers breathing space to deal with its own enormous debt of NIS 1.3 billion to its bondholders.
In 2013, Plaza Centers is scheduled to pay its bondholders NIS 700 million, but it has only NIS 320 million cash.
Elbit Imaging said in a report to the stock market that the bondholders had demanded that Plaza Centers refrain from paying out dividends, warning of legal action if it did. “The decline in Plaza Center’s share price is hindering the company’s ability to make good on its commitments according to the schedule it had planned,” Elbit officials said.