Creditors Send Rabintex Into Liquidation; Little if Anything Left for Bondholders

Oren Freund
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Oren Freund

Creditors of Rabintex Industries decided at a meeting last week to reject the company's offer of a debt settlement. As a result, company management announced on Thursday that it was starting liquidation proceedings.

A maker of military body armor in Beit She'an and controlled by Avi Wertheim, Rabintex owes its B2 series bondholders NIS 76 million and its B1 series bondholders NIS 2.2 million. Creditors with priority over the bondholders include company employees, who will probably receive NIS 3 million from the National Insurance Institute; Bank Hapoalim, owed NIS 33.1 million by the company; and the First International Bank of Israel, owed NIS 11.6 million.

With the company's assets estimated at NIS 47 million, bondholders are likely to suffer a 98% "haircut" and settle for just several million shekels, if anything at all.

The trouble for Rabintex began in 2008, when it lost several substantial U.S. customers, registering a 30% decline in sales and a net loss of NIS 30 million. The market reacted quickly by dropping its share price 85% that same year, while its bonds began trading at double-digit yields. Since then, the losses have only deepened; and in July 2011, company management asked for a stay in proceedings, fearing it wouldn't meet its interest payments to the banks and bondholders.

At the same time, the company began preparing for an emerging debt settlement, signing an agreement to sell its personal body armor business to Achidatex Nazareth Elite for NIS 42 million in five, equal annual payments. Achidatex also allocated Rabintex 10% of the shares of its parent company, Defense Industries International, which currently trades on Nasdaq at a $1.8 million company value.

With the sale of its operations to Achidatex, company management began putting together a debt settlement with its main creditors. Under the proposal, the banks were meant to receive NIS 33 million from future payments owed by Achidatex, while forfeiting NIS 11 million of the debt. Bondholders were to receive the remaining NIS 9 million from the sale of operations, and be forced to forfeit NIS 69.5 million of the NIS 78.5 million owed them.

The banks objected

The bondholders accepted the offer but the banks wouldn't, objecting primarily to the timing of their payments and the distribution between creditors. Under the proposed settlement, payments to the bondholders and banks were meant to be in installments according to the scheduled payments from Achidatex and proportional to their share in the debt. The banks, though, wanted to be paid first, as they would have been in the case of liquidation.

The trustee then suggested, two days before the meeting scheduled for approving the settlement, an alternative arrangement to appease the sides. Under the new proposal, the banks would get priority on the Achidatex payments as they wanted. In return, he suggested selling what remained of the Rabintex stock market listing, its shell, worth an estimated NIS 5 million, giving bondholders two-thirds of the proceeds.

The banks rejected the compromise, demanding all the proceeds from selling the shell. The bondholders also rejected the plan, objecting to the banks receiving payment first, fearing they wouldn't receive their money in the end. With the rejection of the settlement, management was left with no choice but to announce the company's liquidation.

The bondholders might actually see a piece of the pie, if the company's Defense Industries shares - currently worth NIS 690,000 - hold their value, and that's probably why they preferred liquidation. The current picture shows them remaining with NIS 1.6 million, reflecting a 98% haircut on their original debt. But they'll only see it if, and when, the sale to Achidatex is completed and the shares in Defense Industries are realized.