CEDC has warned it will initiate a bankruptcy filing if note holders do not accept its stock offer

CEDC has warned it will initiate a bankruptcy filing if note holders do not accept its stock offer

Central European Distribution Corporation has started offering stock to some of its creditors, as the company is not in a position to cover its debt.

The firm, which sees one set of notes mature next month and another two sets mature in 2016, said late yesterday (25 February) that its proposed stock-swap would reduce its note debt by around US$750m. US-based CEDC, which operates primarily in Central and Eastern Europe, has been struggling with debt, resulting in the firm handing operational control to leading shareholder and Russian Standard owner Roustam Tariko last month, in return for US$65m.

The firm's offer to holders of the three sets of notes comprises:

  • 8.86 new shares of common stock for each US$1,000 of the 3% Convertible Senior Notes due on 15 March
  • 16.52 new shares of common stock, plus $508.21-worth of 6.5% Senior Secured Notes due in 2020, for each $1,000 of the 9.125% Senior Secured Notes due in 2016, and
  • 22.18 new shares of common stock, plus $682.37-worth of 6.5% Senior Secured Notes due in 2020 for each EUR1,000 of the 8.875% Senior Secured Notes due in 2016

If taken up, the offers would see the note-holders receive 65% of CEDC's common stock. Also, the senior secured notes, which total $957m, would be replaced by $500m of the new 6.5% notes, due in 2020.

Meanwhile, the convertible senior notes, which total $258m, and Tariko's Roust Trading Ltd, which is owed $20m in unsecured notes, would share 10% of common stock. A separate $50m credit facility, provided by Roust Trading, would be converted into 20% of common stock.

“CEDC's recent business performance has been positive, and the company is optimistic about future results,” CEDC said. “However, current enterprise value is insufficient to cover the debt and hence distributions to creditors will not be enough to pay them in full.

“CEDC nevertheless has structured a proposal that affords an opportunity for its shareholders to participate in the upside of the company's turnaround.”

The alternative to the offer, CEDC warned, is a bankruptcy filing in the US, which would "effectuate the restructuring through a fall-back, pre-packaged Plan of Reorganisation".

All three offers expire on 22 March.

To read CEDC's official statement, click here.