Delek publishes debt arrangement formula
Controlling shareholder Yitzhak Tshuva to pour NIS 250 million into Delek Real Estate for asset improvement; company's NIS 2.2 billion debt will be converted into two bond series, shares
The main objective of the debt arrangement formula is the improvement of the company's assets, to the extent possible. Controlling shareholder Yitzhak Tshuva will pour money into the company although to date he had not expressed consent to do so.
Barnea did not calculate the company valuation at liquidation on the understanding that in any event, upon liquidation the company's creditors and the banks have first claim on the majority of the company's first lien assets.
Without such an analysis, the company asset potential can be maintained providing the company remains a going concern.
Sources close to Delek Real Estate's controlling shareholder say that the formula reaffirms Tshuva's willingness to support the company and its investors and help it back onto the right track.
In fact, under the current formula, Tshuva will support the company for the next three years until the company's projected earnings from the its entrepreneurship initiatives start pouring in.
Barnea claims that the main benefactors of the initiatives and asset improvement are the company's debt holders.
Delek Real Estate fell into a financial distress due to the global market crises and in the past two years has been engaged in the implementation of a strategic plan for the liquidation and improvement of assets with potential value.
Under the liquidation scheme, the company sold from the beginning of 2010 over NIS 5 billion (about $1.34 billion) of assets among them the Bell tower in Canada and Roadchef in Britain to name just a couple.
The background on which the company publicized its debt arrangement formula was Tshuva's commissioning of an economic study of the alternatives available to the company to meet its financial obligations.
The work was commissioned due to the collapse of negotiations with CIM for the acquisition of the company. Concurrent negotiations with other bodies interested in acquiring Delek Real Estate came up empty handed as well.
Arrangement formula
On the whole, Barnea suggests restructuring Delek Real Estate's debt to enable asset improvement.
The company's NIS 2.2 billion ($590 million) debt, according to Barnea's formula, will be converted into two bond series and shares as follows: NIS 800 million ($215 million) of the debt will be converted into a new long-term bond series and NIS 400 million ($107 million) will be converted into two bond series convertible with the company's shares.
Additionally, debt holders will receive 70% of the company's shares that will enable them to enjoy any future improvement of the company's assets, if such an improvement does occur.
The long term series principle will be NIS 800 million, and its holders will not receive the principle payment for a five-year period. The series will have a 2% principle during 2012-2016. During the five years after that the holders of the series will receive principle payments and the interest rate will climb to 6% in 2017-2021.
Barnea explains that the long-term series holders will receive an average annual interest rate of 4%, which indicates that they will not receive any risk premium as compared to the holders of government bonds with a similar average duration and conditions.
The second bond series – the convertible bonds – will in fact constitute a balloon loan for a seven-eight year duration which means that its holders will not receive interest or principle payments until maturity of the bond in 2017-2018.
The holders of this series will have the option of converting the bonds to 30% of the company's shares after full dilution.
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