Bondholders reject new Steinmetz Scorpio offer

Bank Hapoalim, which is owed $95 million by the real estate company, is still discussing the offer.

Beny Steinmetz has offered a compromise to the banks and bondholders in Scorpio Real Estate Ltd. (TASE: SCRP.B1). According to the proposal, which "Globes" has obtained, he will inject an initial $100 million into the company, and the money will not be repaid until after the company's creditors are paid, reversing his previous position. The new offer gives preference to the bank over the bondholders.

Bank Hapoalim (TASE: POLI), which is owed $95 million, is still discussing the offer. The bondholders' representative rejected the offer this morning unless the repayment terms to them and the bank are made equal.

Steinmetz made the new offer three weeks after Scorpio's bondholders - including Psagot Investment House Ltd., Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), Menorah Mivtachim Holdings Ltd. (TASE: MORA), and Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) - threatened to demand immediate repayment. The bondholders are owed $150 million.

Steinmetz offered to pay the bondholders $75 million immediately, and Bank Hapoalim will receive $5 million, and Steinmetz will personally guarantee the rest of the debt to the bank. The remaining $20 million will fund Scorpio's activity and finance its two projects in Ukraine.

The remaining $75 million debt to the bondholders will become subordinate to the balance of the debt to Bank Hapoalim until 2013, when the bank will receive $42.5 million, half of the outstanding debt. After that, the two debts will have equal standing, and they will be repaid through 2019 proportionately to the creditors (60% to the bondholders and 40% to the bank).

The bondholders' opposition to Steinmetz's offer is over the interest on the debt. He is asking them to forego the regular interest payments for 30 months, until 2013, when the interest rate on the bonds will fall from 6.5% to 4%. At the same time, Scorpio will continue its regular debt repayments to Bank Hapoalim.

Sources close to the negotiations said in response that the bondholders were completely mistaken about the interest payments. The sources said that Bank Hapoalim made a major concession by accepting a cash payment that is less than its proportionate share of Scorpio's debt - $5 million compared with $75 million - in exchange for Steinmetz's personal guarantee of the balance. The sources say that the bondholders therefore have nothing to complain about. One source said, "Rejecting an immediate cash payment of $75 million in very odd. After all, they'll get less if they liquidate Scorpio."

The bondholders are also angry about the lack of symmetry in Steinmetz's personal guarantee; the bank is getting one and they are not. The bondholders only have liens on Scorpio's assets and a promise that the company can serve its debt.

If the bondholders reject Steinmetz's new offer, another option may be made: Bank Hapoalim and the bondholders will share Stienmetz's capital injection proportionately ($48 million to the bondholders and $32 million to the bank), and Steinmetz will give personal guarantees to both parties.

Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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