The woes of Scorpio Real Estate, controlled by billionaire Beny Steinmetz, are not confined to its inability to meet its upcoming debt payment to its bondholders. The company reached agreement in 2017 with Bank Hapoalim (TASE: POLI), another of its creditors, on rescheduling €20 million (NIS 85 million) of debt. Steinmetz gave both Scorpio's bondholders and Bank Hapoalim a personal guarantee for full payment of the debt.
"Globes" reported yesterday that Scorpio's creditors had convened a meeting after learning that the real estate company was unable to meet its NIS 20 million debt payment due at the end of the month under the terms of the debt arrangement signed two years ago. The bondholders believe that Steinmetz, who has already poured huge sums into Scorpio in order to support the company, will be forthcoming once more. Under the terms of the arrangement, he has 90 days to do so from the date on which the company fails to make its scheduled payment.
The case of Bank Hapoalim differs from that of the bondholders. Up to now, the bank has not been asked to write off credit it provided to finance Scorpio's activity. In the two bond settlements signed by the company to date, the bank also obtained a guarantee from Steinmetz for full payment of his debt to it. As far as is known, since the second bond settlement was signed in July 2016, Steinmetz has paid the bank tens of millions of shekels from his own pocket in accordance with the debt payment terms.
Forgiveness for interest on arrears
The letter sent by Scorpio to Hermetic Trust in March 2018, however, indicates that Steinmetz prefers the payment to come from Scorpio's money, even if at a later date. According to the letter, Scorpio did not have enough cash in December 2017 to meet its €3.8 million (NIS 16 million) debt payment. In addition, according to the company's projected cash flow, it does not expect to have enough money to meet the subsequent payments in April 2018 and January 2019 (€8.1 million each). Scorpio therefore contacted the bank with a request for postponement of its debt payments and a waiver of the accumulated interest on the arrears of its debt.
According to the letter, Bank Hapoalim granted Scorpio's request and agreed to insert changes into the revised agreement according to which three payments will be delayed: one in June 2018, the second at the end of March 2019, and the third at the end of September 2019. Interest on the unpaid debt was increased by 1% to LIBOR plus 3%, with Steinmetz making the additional payment instead of the company. At the same time, Bank Hapoalim granted Scorpio's request to forgive payment of interest in arrears on its debt if the company meets these revised payments, the first of which is at the end of the current month.
The crisis, the write-off, and Steinmetz's payments
Scorpio develops and builds income-producing residential real estate in Eastern Europe. The company entered a severe crisis caused by a collapse in the value of its real estate that caused the company huge losses and cash flow problems. Scorpio was unable to repay its debts, and its auditors attached a going concern warning to the company's financial statements.
Starting in late 2009, Scorpio negotiated a debt settlement with its creditors, bondholders and Bank Hapoalim, during which the bank demanded immediate repayment of Scorpio's NIS 100 million debt to it. A debt settlement was eventually signed in early 2011 in which Steinmetz put $100 million into Scorpio as part of a rescheduling of its debt.
The company was still in dire straits, however, and a further decline in its situation in 2014, following the tension between Ukraine and Russia, destabilized Scorpio's business in those countries. A second debt settlement was reached in July 2016 following prolonged negotiations between the parties. This settlement included a NIS 72 million write-down of Scorpio's bond debt from NIS 240 million to NIS 168 million.
In this settlement, Scorpio undertook to pay at least NIS 20 million a year on the principal by the end of 2019, when it is obligated to repay at least NIS 40 million, with the remaining payment under the settlement being made by the end of June 2020. Steinmetz himself personally guaranteed all of these payments, both principal and interest, according to the agreed payment schedule, and agreed to give the company's bondholders priority over its debt to him until the bond debt is paid in full. Scorpio's bonds were delisted from trading on the Tel Aviv Stock Exchange following this agreement.
Published by Globes [online], Israel business news - www.globes-online.com - on June 13, 2018
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