La Polar Bondholders Challenge Plan to Swap Debt for Stake

Chilean retailer Empresas La Polar SA’s bondholders are rejecting a proposal by management that would erase debt by giving creditors new securities convertible into a 50 percent stake in the company.

Holders of a majority of La Polar’s 197 billion pesos ($357 million) of Series F bonds said in a letter to the board that they want creditors to end up with an 80 percent stake. Banco de Chile, a legal representative for the bondholder group, distributed the letter today at a La Polar shareholder meeting. As an alternative, the company could pay some bond coupons in shares, according to the letter.

Shares of La Polar, which sells clothing and electronics through 40 stores in Chile, have tumbled 44 percent this year as the Santiago-based company disclosed an effort to restructure its obligations, including a sale of new securities that could be converted into stock. La Polar has struggled to regain investor confidence since defaulting in 2011, when it acknowledged lying on financial statements and modifying loan terms without informing customers.

Stockholders voted today to approve a debt-swap proposal that would give creditors 50 percent, over an alternate plan that would have given them 55 percent.

The shares gained 4.7 percent today to 39.75 pesos at 12:59 p.m. in Santiago. The stock is still Chile’s worst-performing this year. The series F peso fixed-rate bond last traded at 16.45 percent of face value yesterday, up from 10.01 percent on April 29, the day before the company said it wanted to restructure its debt. The series G inflation-adjusted bonds traded at 2.78 percent of face value on June 27.

At the shareholder meeting in Santiago, La Polar Chairman Cesar Barros read the bondholders’ letter aloud, adding that he wants holders of all classes of the company’s bonds to jointly devise a plan that could be presented to shareholders.

“Weeks of hard negotiations lie ahead,” Barros said. “We’re still in time of changing course and ensuring La Polar’s survival.”

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