Central European Distribution Corp., the Polish vodka distiller rescued by Russian billionaire Roustam Tariko last year, proposed swapping bonds for equity to cut its debt by more than $750 million.
The company, which made a deal in December to get as much as $107 million in new capital from Tariko five months after he bought its debt, extended the offer to bondholders after convertible notes due next month sank and its stock plunged as much as 65 percent in New York yesterday. CEDC, maker of the Zubrowka and Parliament brands, said it’s also considering a pre-packaged bankruptcy plan in Delaware, according to a filing yesterday.
Tariko, who owns 19.5 percent of CEDC, signed an agreement Dec. 28 giving him operational control in exchange for the capital after Moody’s Investors Service cut the company’s credit rating on concern over losses for bond investors. Yields on CEDC’s dollar-denominated bonds due 2016 doubled to 33.76 percent between May and November last year, and have fallen 96 basis points since the December deal with Tariko.
“The company believes that a successful restructuring of both the convertible senior notes and the senior secured notes will improve its financial strength and flexibility,” Warsaw-based CEDC said in PRNewswire statement issued yesterday. Should the plan not find support among bond and shareholders the company may decide to file for bankruptcy, according to the statement.
The offer, which expires March 22, would give holders of CEDC’s 3 percent convertible bonds due next month 8.86 new shares in exchange for each $1,000 principal amount of their notes, the company said.
Investors in the 9.125 percent 2016 bonds issued by CEDC Finance Corporation International Inc. will receive 16.52 new shares and $508.21 principal of the company’s 2020 debt. On the 8.875 percent 2016 bonds, holders are being offered 22.18 new shares for each 1,000 euro principal amount and $682.37 principal of the 6.5 percent 2020 bonds, according to the statement.
CEDC sank 12 percent to 55 cents at 10:18 a.m. in New York today, heading for the lowest close in more than 12 years. The decline followed a 55 percent drop yesterday.
The price on the convertible dollar notes due March 15 slipped 7.7 percent to 24 cents on the dollar yesterday, down from as high as 97 cents in July, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Tariko’s Roust Trading Ltd. and a committee of 2016 note investors have proposed an alternative to the bond-for-equity exchange offer being tabled by the company, CEDC said yesterday. This is yet to be formally presented to the board of directors.
“The final direction of the restructuring will be based on the outcome of the solicitation process,” CEDC said in the statement. “If sufficient notes are tendered in the exchange and shareholders approve the plan, CEDC will consummate the exchange offers.”
Should the company proceed with the bankruptcy plan, it isn’t expected to affect operations in Poland, Hungary, Russia and Ukraine, according to the statement.
Shares of CEDC also tumbled in Warsaw today, losing 44 percent to a record-low 2.08 zloty, or 65 cents. The stock fell 20 percent yesterday.
James Archbold, CEDC’s head of investor relations, resigned Feb. 22, according to a report posted Feb. 24 by GPWInfoStrefa, a news portal run by the Polish Press Agency in cooperation with the Warsaw Stock Exchange. An e-mail sent yesterday to CEDC’s investor relations address wasn’t returned.
CEDC erased about 50 percent of its market value in 2012 amid slumping sales, rising liabilities and management transitions. Revenue fell 8.7 percent in the third quarter to $191.3 million, after shrinking in the previous two quarters, data compiled by Bloomberg show. Chief Executive Officer William Carey stepped down in July.
Moody’s cut CEDC’s bond rating by one level in January to Caa3, nine steps below investment grade, on concern the company hadn’t secured “adequate financing” to repay the convertible notes maturing next month.