Shortly after writing our last article on Rolta India’s restructuring proposal, “In Response to Rolta’s Restructuring Support Agreement“, we were contacted by a reporter from Bloomberg covering the story for a phone interview with Randy Durig. The notes from the interview can be found below.
Rolta Debt Plan ‘Misguided,’ Better Deal Needed, Hedge Fund Says
By David Yong, Bloomberg
(Bloomberg) — Rolta India’s plan to restructure about $500m of defaulted notes is unlikely to succeed because it imposes bond haircuts while preserving equity holders, according to U.S. hedge fund Durig Capital, Inc.
“The bond restructuring plan is misguided,” CEO Randy Durig says in a phone interview from Oregon. “These past two years, we have been playing a game of rewarding stockholders first at the demise of bondholders”. “In a default situation, bondholders have a first-lien claim on the equity,” he says. “Typically, a restructuring would carve out 98% of the equity to creditors”.
Rolta has failed to pay coupons over the past two years, amounting to about 10 cents on the dollar a year, Durig says. “Yet stockholders, who are legally in line behind debt holders, have felt no pain”. Durig says he manages about $60m of assets, and owns some of Rolta’s 2018 and 2019 notes. Rolta didn’t reply to emails seeking comment; its financial adviser Moelis & Co. declined to comment.
** NOTE: Rolta’s proposal on Feb. 12 includes issuing 1Y and 5Y payment-in-kind notes as repayment; allows company to redeem the notes within 30 days to 2 years from agreement. It intends to solicit support from bondholders by April 9th.
The redemption scenario works out to a recovery of 53 to 83 cents on the dollar for bondholders, Durig calculates. He estimates the ad hoc committee has only 25% support from bondholders, and isn’t “even close” to getting the two-thirds needed.
The deal was reached after extensive negotiations with Rolta, according to Houlihan Lokey, which advises the ad hoc committee of noteholders. “We believe it represents the best option for bondholders,” Houlihan says in email on Tuesday. “We would encourage all bondholders to support the transaction” or discuss any concerns with it.
** NOTE: Rolta’s 2018 notes fell 0.4 cents to 32.8 as of 2:55pm, Hong Kong time, according to Bloomberg-compiled prices; the 2019 bonds gained 0.3 cents to 31.8. Both have risen by almost 8 cents since the Feb. 12 announcement.