Multicanal files motion to hold Argentinian Recovery group, lawyers in contempt

By Jeff Pines

Washington, Feb. 3 - Multicanal SA wants an investor group that includes Argentinian Recovery Co. LLC and the law firm of Proskauer Rose LLP held in contempt, according to a Feb. 2 filing with the U.S. Bankruptcy Court for the Southern District of New York.

Multicanal claims the investor group is violating a temporary restraining order prohibiting the investors from filing a motion to involuntarily throw Multicanal into Chapter 11.

Multicanal is in the process of reorganizing itself under Argentine law through an acuerdo preventivo extrajudicial, an out-of-court restructuring allowed under Argentine law.

According to a Feb. 2 filing by the investors, Argentinian Recovery and related investors hold $157 million of Multicanal's bonds, or about a third of the company's public debt. On Jan. 28, the group filed its motion starting Chapter 11 proceedings against Multicanal.

Foreseeing the possibility of some U.S. investors taking this tack, on Jan. 16 Multicanal filed a motion under section 304 of the U.S. bankruptcy code that would give the Argentine courts authority in the restructuring and protect the company from motions filed in U.S. courts. That section 304 request was granted by the U.S. Bankruptcy Court for the Southern District of New York.

The court issued a temporary restraining order freezing lawsuits started by the investor group. The order prevents Argentinian Recovery and anyone affiliated with it from taking any actions in the United States that would interfere with Multicanal's APE.

Argentinian Recovery consented to an extension, and the court allowed it to file a motion to consider the legal issues questioning whether section 304 applied because of a possible violation of the Trust Indenture Act. On Jan. 27 the court set a hearing for March 24.

The day after the hearing, the creditors filed to start involuntary Chapter 11 proceedings.

In its Feb. 2 motion asking the court to vacate its restraining order, the group argued that Multicanal benefited from the Trust Indenture Act's protection in marketing and selling its bonds, and "now seeks to eviscerate each bondholder's fundamental rights."

The group says non-consenting noteholders will get notes with 70% less value and none of the protections of the indenture act under the APE.

In fact, the group argues the Trust Indenture Act was enacted to protect investors from reorganizations like the APE.

The court then issued an order allowing Multicanal to continue with its APE without fear of U.S. intervention, and to show why the group and its attorneys should not be held in contempt.

Multicanal said it believes the temporary restraining order was clear and that filing motions to force the company into Chapter 11 violate the restraining order.

It is "simply the latest chapter of ARC's and its affiliates' efforts to disrupt, and indeed, derail Multicanal's restructuring effort and its APE proceeding," according to the company's filing.

"Multicanal intends to continue with the APE proceedings and seek the Argentine court's confirmation of the debt restructuring supported and approved by the requisite majority of its creditors on Dec. 10, 2003," said Adrian Meszaros, the company's chief financial officer in a Securities and Exchange Commission filing Tuesday.

Under the APE, for each $1,000 principal amount of existing debt tendered in connection with the APE solicitation, holders can choose to receive either the par option of $1,050 principal amount of 10-year step-up notes or the combined option of $440 principal amount of either 7% seven-year notes or seven-year floating-rate notes and 641 class C shares of common stock.

In total, Multicanal is seeking to exchange $76.5 million principal amount of existing debt for $80.3 million of 10-year notes and $143.0 million principal amount of existing debt for $143.0 million of seven-year notes and to capitalize $181.9 million principal amount of existing debt. And it is looking to retire $130 million under the cash option. No accrued and unpaid interest will be paid under the APE solicitation.

It is also offering a cash option in which it is seeking to buy up to $131 million of its existing debt at a price of $300 per $1,000 principal amount. Holders who select the cash option will be required to execute the APE. The involuntary Chapter 11 filing was made on Jan. 28.

The case number for the involuntary Chapter 11 filing is 04-10523, while the section 304 proceedings are under case 04-10280.

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