Elbit Imaging Yield Drops Most in Two Weeks on Debt Proposal

Feb. 27 (Bloomberg) -- Elbit Imaging Ltd.’s bonds rallied, sending the yield down the most in more than two weeks, as the Israeli investment company reached an understanding with major bondholders on a proposed debt plan.

The yield on Elbit Imaging’s 471.5 million shekels of 5.1 percent bonds maturing December 2018 fell 137 basis points, or 1.37 percentage points, the most since Feb. 10, to 36.60 percent at the close in Tel Aviv. The company’s shares rose 1.7 percent. The yield on the 4.25 percent benchmark government bonds due in 2023 declined one basis point to 3.97 percent.

Elbit reached an understanding with its bondholders U.S. funds York Capital Management LLC and Davidson Kempner Capital Management LLC which will convert the company’s unsecured debt of 2.46 billion shekels ($660 million) into 86 percent of the company’s shares. Moody’s Midroog last week cut Elbit’s rating by five levels to CA, while Standard & Poor’s lowered it to default after it missed payments to bondholders.

“The proposed restructuring plan would provide a solution for the company’s debt problems, while reducing the value of equity holders,” Adar Etzioni, head of research at Migdal Capital Markets Ltd., said by phone from Tel Aviv. “There is still uncertainty though if the deal will be sealed because of the company’s controlling shareholder’s debt owed to Bank Hapoalim Ltd.”

Loan Demand

Bank Hapoalim today filed request to an Israeli district court to appoint a receiver for the controlling shares of Elbit Imaging, Calcalist reported today. Europe Israel MMS Ltd., which owns 52.3 percent of Tel Aviv-based Elbit, earlier this month received a notice from the bank alleging a breach of a loan agreement and demanding immediate repayment. The shares of the company held by Europe Israel were pledged as collateral for the loan.

The proposed restructuring would transfer control of Elbit from controlling shareholder Mordechay Zisser to York Capital and Davidson Kempner, which hold 20 percent and 15 percent, respectively, of the company’s outstanding debt. Zisser who is also serves as chief executive officer of the company, will continue to hold his post under the terms of the debt plan.

Elbit, which invests in real estate and medical companies, faces more than 600 million shekels in debt payments this year and has reserves of about 80 million shekels, according to Moody’s Midroog. The company, which has sold assets in the U.S., U.K. and the Netherlands, has also been seeking to divest its holdings in India.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds rose for the first time in three days, increasing 0.2 percent to 283.84. Average annual inflation expectations declined two basis points to 2.23 percent, according to the two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity. The government’s target range is between 1 percent to 3 percent.

The shekel strengthened 0.2 percent to 3.7245 at 4:51 p.m. in Tel Aviv, trimming its monthly loss to 0.4 percent. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, were unchanged at 1.61 percent.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net