Elbit 2020 Yield Drops Most in 2 Weeks on Debt Proposal Report

Elbit Imaging Ltd.’s 2020 bonds rallied, sending the yield down the most in more than two weeks, on investor optimism the Israeli investment company will present a debt plan. Government bonds rose.

The yield on Elbit Imaging’s 5 percent bonds maturing April 2020 fell 430 basis points, or 4.3 percentage points, the most since Jan. 23, to 58.21 percent at the close in Tel Aviv. The company’s shares rose for the first time in a week, gaining 4 percent. The government’s 4.25 percent benchmark bonds due in 2023 yielded 4.06 percent, down one basis point.

Elbit Imaging, which last week said it is trying to reach a framework that will enable the debt-ridden company to meet its commitments, may transfer control to U.S. funds York Capital and DK Partners as part of a settlement with bondholders, daily TheMarker reported today. S&P Maalot on Feb. 5 cut Elbit’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.

“A solution developing to the company’s debt problems, even with a possible haircut, is a positive move,” said Adar Etzioni, head of research at Migdal Capital Markets Ltd., by phone from Tel Aviv. “Further the prospect that foreign funds are seeing value in the company are pushing bonds and shares up.”

York and DK Partners each have invested 250 million shekels ($68 million) in Elbit bonds and are now the largest bondholders, the newspaper said. Tel Aviv-based Elbit, which invests in real estate and medical companies, last week asked to delay 82 million shekels in principal payments due Feb. 20, as it called for talks with bondholders. The company said today its debt buy-back deals with financial institutions were ended early as a result of a decline in the market price of the debentures and the failure to meet the loan-to-value covenants.

Selling Assets

Elbit 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 above default. Elbit, which has sold assets in the U.S., U.K. and the Netherlands, is also seeking to divest its assets in India.

“The company announced last week that it is working on a solution which will take into account the interests of all bondholders,” Motti Scherf, spokesman for Elbit, said today by phone. A message left for Jeremy Blank, a representative for York Capital in Israel, was not returned.

Israeli funds raised last week doubled to a net 702 million shekels, Meitav Investment House Ltd. reported today. Corporate-bond funds pulled in 473 million shekels in the week ended Feb. 7 compared with 322 million shekels a week earlier, it said. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, increased for a second day, adding 0.1 percent to 283.65, the highest level on record.

Average annual inflation expectations declined two basis points to 2.16 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. Israel’s shekel strengthened 0.1 percent to 3.6937 on Feb. 8, boosting its gain this month to 0.4 percent, according to data compiled by Bloomberg.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined one basis point to 1.7 percent that same day. 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.

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