Bethel Finance: Delek Real Estate reaches partial debt settlement

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Delek Real Estate Ltd. (TASE: DLKR), controlled by Yitzhak Tshuva, reached a debt settlement with most of its bondholders on the eve of the deadline. Negotiations took five months from the company's announcement that it would seek a settlement. The agreement is due to be signed at the company's offices today.

Delek Real Estate settled with its Series 4 and 5 bondholders, to whom it owes NIS 150 million and NIS 1.3 billion respectively. No agreement has been reached with its Series 25 bondholders, to whom it owes NIS 580 million, as the bondholders are holding out for better terms.

The Series 4 and 5 bondholders will receive 46% of Delek Real Estate, which they will divide pari passu, and the company will issue to them two new bond series totaling NIS 1.4 billion, which will mature over 16 years.

Under the settlement, Tshuva will inject NIS 1 billion into Delek Real Estate, as follows: NIS 50 million a year over five years for a total of NIS 250 million; he will buy NIS 200 million worth of bonds from the bondholders; and he will provide NIS 400 million in guarantees for the new bond that the company will issue, in the form of a secondary lien on 8% of Delek Group Ltd. (TASE: DLEKG). This lien will be subordinate to the lien in favor banks on Delek Group shares.

Tshuva will also forego NIS 120 million in Delek Real Estate debts and collateral. He will pay the bondholders up to NIS 40 million immediately. The bondholders will divide the guarantees and collateral between them.

Delek Real Estate owes its bondholders NIS 2.1 billion. The deadline for a deal was today, otherwise the company would petition the courts for a stay in proceedings. The company has not yet decided whether to ask the court to approve the debt settlement or if it will nonetheless petition for a stay in proceedings.

Delek Real Estate got into trouble because of its heavily leveraged property purchases, mostly in the UK, through subsidiary Delek Global Real Estate Ltd. The company has failed to meet its bond payments for a long time, and in September, its bondholders agreed to postpone the upcoming NIS 300 million payment in order to reach a debt settlement.

In May 2009, Delek Group, distributed its shares in Delek Real Estate as a dividend in kind, with Tshuva receiving the controlling interest. Delek Real Estate's debts totaled NIS 15 billion at the end of September 2009, and its shareholders' equity deficit was NIS 2.2 billion.