Elbit 2020 Bond Yield Rises to 3-Month High After S&P Rate Cut

Elbit Imaging Ltd.’s 2020 bonds slumped, sending the yield to a three-month high, after Standard & Poor’s Maalot lowered the Israeli investment company’s rating on concern it will miss debt payments. Government bonds rose.

The yield on Elbit Imaging’s 5 percent bonds maturing April 2020 jumped 502 basis points, or 5.02 percentage point, to 57.3 percent, the highest since Nov. 8, at the close in Tel Aviv. The company’s shares fell 3.9 percent to a record 5.685 shekels. The government’s 4.25 percent benchmark bonds due in 2023 yielded 4.07 percent, down two basis points.

S&P Maalot cut Elbit Imaging’s rating by five levels to ilCC, two grades above default, saying it’s possible the company may miss debt payments in the immediate term. Elbit, which invests in real estate and medical companies, yesterday said it requested to delay 82 million shekels ($22 million) in principal payments due Feb. 20 as it calls for talks with bondholders.

“Elbit doesn’t have enough funds to repay bondholders and needs to negotiate a debt settlement,” said Adar Etzioni, head of research at Migdal Capital Markets Ltd. in Tel Aviv. “The company has already sold all of its good assets and is struggling to sell its remaining assets at good prices.”

Debt Payments

The company faces more than 600 million shekels in debt payments this year and has reserves of about 80 million shekels, Moody’s Midroog said last month as it lowered the rating on several Elbit bonds to B2, five levels below investment grade. Elbit, which has sold assets in the U.S., London and Holland, is also seeking to divest its assets in India.

Israel’s shekel weakened 0.3 percent to 3.6935 a dollar at 4:48 p.m. in Tel Aviv, trimming its gain this month to 0.4 percent, according to data compiled by Bloomberg. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, was little changed at 283.04.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined three basis points to 1.72 percent. The central bank has gradually lowered the key interest rate by 1.5 percentage points since 2011 to 1.75 percent to spur the economy, which has suffered from the fallout of the European debt crisis.

Average annual inflation expectations rose two basis points to 2.25 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.

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