In a crowded and chaotic Tel Aviv courtroom, banks, bondholders and management battled it out Sunday over the nearly NIS 6 billion debt pile owned Nochi Dankner’s IDB Development Corporation.
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But the sides left without anything conclusive, with District Court Judge Eitan Orenstin telling the bondholders and IDB management to reach an out-of-court agreement within two days or “I’ll make tough decisions.”
Bondholders asked the court last week to give them control of the company via a debt-for-equity swap while rescheduling the rest of the debt. The company, a wholly owned subsidiary of Dankner’s IDB Holding Corporation, owes them NIS 3.2 billion out of total debt of NIS 5.8 billion.
Bondholders maintain that the company can’t meet its repayments and should be declared insolvent, an assertion IDB vehemently denies. But the judge, who was being asked to decide which side is correct, instead urged a negotiated solution.
“Any decision being made here will be fateful,” he said. “IDB Development’s condition is problematic, but the steps I am being asked to take are drastic,” Orenstin said. “The next payment is coming up very shortly. I recommend that you now conduct negotiations and come to a reasonable settlement − an interim solution that won’t scramble all the cards. You have two days to reach an agreement, otherwise I’ll be forced to make tough decisions,” he said.
Orenstin, meanwhile, had harsh words for all parties involved, including the bondholders − who are represented by the U.S. private equity fund York Capital, Psagot Investment House and Phoenix Holdings − and IDB management. But he leveled particularly strong criticism at the banks. He said he understood why the banks object to the bondholders’ recovery plan − because it will put control of IDB in the hands of bondholders.
Dankner and his IDB group, which control well-known companies such as Super-Sol and Cellcom Israel, have been at the center of a public storm as they tried to juggle the demands of a long line of creditors.
“How did the banks and insurance companies give out loans without collateral? Where’s the bank’s credit committee? Where were the regulators? This conduct raises serious questions. What were you expecting − that the court would give you applause?” the judge said.
The court battle got underway two days after Dankner said he reached an agreement with Eduardo Elsztain, a Argentine property magnate, under which Elsztain will invest another $75 million in Dankner companies. Of that, $18 million will go to Ganden and $57 million in IDB Holding, with the two jointly controlling IDB. Elsztain will be appointed vice-chairman and Dankner will retain his role as chairman.
However, the capital injection into Ganden is conditional upon a debt-rescheduling agreement with its two big bank creditors, Leumi and Mizrahi-Tefahot Bank. Leumi had been planning to forgive about NIS 150 million of Ganden’s debt, but rescinded the offer earlier this month under public pressure.
In Sunday's hearing, Orenstin also raised questions as to how much IDB had distributed in dividends to its controlling shareholders, and where the money had gone.
The hearing was attended by about 70 attorneys, who receive an average salary of $200 per hour of work, representing IDB Holding, IDB Development, the various bondholders, the banks and smaller creditors. Dankner himself, who returned from Argentina over the weekend, was not present.
“Where’s Nochi? Is he contributing anything to the arrangement?” asked Orenstin.
Attorney Ruby Bechar, who is representing IDB Holding, said Dankner was not, and added that the deal Dankner had penned with Elzstain on Thursday was waiting for court approval.