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 yesterday after convertible notes due next month sank and its stock plunged as much as 65 percent in New York. CEDC, maker of the Zubrowka and Parliament vodka 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 361 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 added 5.1 percent to 65 cents in New York today, paring back yesterday’s record 55 percent drop. Shares in Warsaw sank a third trading day, sliding 42 percent to a record-low 2.18 zloty, or 68 cents. CEDC’s Polish stock fell 20 percent yesterday.
The price on the convertible dollar notes due March 15 fell 37 percent to an all-time low of 15 cents on the dollar today, down from as high as 97 cents in July, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Should the exchange plan fail to win sufficient creditor support, CEDC asked for a vote on a pre-packaged bankruptcy in Delaware that would produce a similar outcome while requiring fewer backers, regulatory filings show.
Should both votes fail, “the company may be forced to explore other immediate alternatives,” CEDC said in filings.
The company also disclosed alternative proposals yesterday submitted by investors, including one backed by Tariko that would give him and some other creditors 85 percent of the company, and another from shareholder Mark Kaufman offering $75 million to support a different restructuring plan.
“The final direction of the restructuring will be based on the outcome of the solicitation process,” CEDC said in yesterday’s statement. “If sufficient notes are tendered in the exchange and shareholders approve the plan, CEDC will consummate the exchange offers.”
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.