By Tom Hals
(Reuters) - One of the world's biggest vodka producers,
Central European Distributors Corp, has launched a last-ditch
bond exchange to pare its debt by $750 million, but opposition
from its chairman may force it to file for bankruptcy.
The company, with headquarters in Mount Laurel, New Jersey,
and Warsaw, Poland, has been rocked by problems with its
financial reporting, the resignation of its chief executive and
recent battles with shareholders over control of the company.
It is also defending various U.S. lawsuits, including at
least two shareholder class actions.
CEDC faces a liquidity crisis, with less than $70 million in
cash and credit facilities to cover $257.9 million in notes that
become payable on March 15, according to securities filings.
As a result, CEDC is offering to exchange the notes due in
March for about 10 percent of the company's stock. It is also
offering to exchange about $957 million senior secured notes
that come due in 2016 for a mixture of new debt that matures in
2020 and 65 percent of its stock.
A separate $50 million secured debt held by Roust Trading
Ltd, a rival vodka distributor that is controlled by CEDC's
billionaire Chairman Roustam Tariko, would be converted into 20
percent of CEDC stock.
CEDC said in a proxy statement filed on Thursday that the
proposed bond exchange was opposed by Roust, which also holds
about 40 percent of the notes due in March. That essentially
gives Roust and CEDC's Chairman Tariko a veto on the proposed
bond swap, which requires that at least 95 percent of the notes
The voting deadline for the company's plan is March 22.
Bermuda-based Roust Trading, which owns around 20 percent of
CEDC's stock, is formulating its own plan, led by Tariko. It has
proposed investing $172 million, which along with new debt would
be exchanged for the notes due in 2016. Roust would receive 85
percent of the company's equity, with the rest going to the
holders of the notes due in March.
A person involved in the restructuring called the favorable
treatment of Roust's $50 million secured claim "shocking," and
said it could become a focus of litigation if the company ended
up in U.S. Bankruptcy Court. However, this person said a
free-fall or unplanned bankruptcy could still be avoided if all
parties agreed to a reasonable proposal that involved fresh
A phone call and email to Anna Zaluska, CEDC's spokeswoman,
were not immediately returned.
TWO MORE PROPOSALS
In addition, two other proposals have surfaced.
Mark Kaufman of Monaco, the second-biggest stockholder after
Roust, has proposed investing $75 million, conditioned on all
parties reaching an agreement that takes into account the
current market price for the March 2013 notes. Those notes are
worth less than $50 million, based on current bids, according to
CEDC also said in its proxy on Thursday that it had received
interest from a "significant third party group" about a
Given the uncertainty, the company also asked holders of its
notes to approve a backup Chapter 11 bankruptcy plan, should the
bond exchange fail. The Chapter 11 plan would be presented to
the U.S. Bankruptcy Court in Delaware.
The bankruptcy would reduce the debt in a similar way to the
proposed bond exchange, but would allow the company to force the
plan on a small number of hold-out creditors.
Companies that file for bankruptcy with a plan of
reorganization approved by creditors often can complete their
Chapter 11 in months or even weeks, at a fraction of the cost of
a crisis-driven filing.
CEDC is being represented by Skadden, Arps, Slate, Meagher &
Flom, and Jay Goffman is their proposed counsel if they file for
bankruptcy. Houlihan Lokey is the company's investment banker
and Alvarez & Marsal is the financial adviser, according to
Kaufman is being advised by Benoit & Associes.
Roust Trading is being represented by Tom Lauria of White &
CEDC was founded in 1990 to import Foster's and Grolsch beer
into Poland and has grown into the leading vodka seller in
Russia, Poland and Hungary.
(This story has been corrected to remove the reference to
Kaufman's proposed investment being used to pay off the 2013
notes. His proposal did not specify the use of the funds.)
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