Judge: Multicanal's Argentine reorganization may be recognized, Chapter 11 dismissed under conditions

By Jeff Pines

Washington, Aug. 30 - U.S. district judge Allan Gropper ruled Multicanal SA's Argentine out-of-court restructuring, or acuerdo preventivo extrajudicial, may be recognized and the company's U.S. involuntary Chapter 11 case dismissed if two conditions are met.

The first condition requires the company to resolve allegations of criminal conduct in Argentina and the second requires the company to provide more choices for non-institutional holders of Multicanal's debt.

Judge Gropper's ruling was filed Friday with the U.S. Bankruptcy Court for the Southern District of New York.

Multicanal, an Argentine cable television systems operator, wanted to pursue an out-of-court restructuring and obtain protection from lawsuits in U.S. courts under Section 304 of the U.S. Bankruptcy Code. But it has faced stiff, unrelenting resistance from a group, including Argentinian Recovery Corp. and WRH Partners Global Securities LP.

Argentinian Recovery Corp. filed a complaint on Dec. 19, 2003 to throw Multicanal into involuntary Chapter 11.

In March 2004, Gropper denied Argentinian Recovery's motion to dismiss the Section 304 proceedings.

Multicanal sold $509 million of debt in five series of notes from 1997-2001, and when economic turmoil rocked Argentina's economy, it also wrenched Multicanal. The majority of the notes are held by U.S. institutional investors. It appears that 5% of the notes were held by non-qualified institutional buyers, Gropper said.

By April 2002 the company had defaulted on all of its notes. The company then went to several of its institutional noteholders to hold discussions.

In January of 2003, the company proposed giving its noteholders one of three options for accepting the APE. The first was to pay $300 per $1,000 principal amount for $100 million of notes. Retail investors were required to choose this option.

The second option was $1,000 in principal in Multicanal's 10-year notes with interest at rates that would increase over time from 2% to 4%, and the third option was $315 in principal of Multicanal's seven-year notes bearing interest at a fixed 7% annual rate or an economically equivalent floating rate, as elected by the holder, and 598 Multicanal class C common shares.

In July, it sweetened the offer. Creditors who had chosen cash would get $300 in cash plus a minimal amount of interest at a rate of 2% from the date on which the APE was approved to the date on which noteholders received payment.

Those who chose notes and stock would get $440 of Multicanal seven-year notes bearing interest at a fixed 7% annual rate or an economically equivalent floating rate, as elected by the holder, and 641 class C shares for each $1,000 of existing debt tendered.

Creditors who chose only notes would get $1,050 of Multicanal's 10-year notes for each $1,000 of existing debt tendered bearing interest at rates that would increase over time from 2.5% to 4.5%.

Noteholders could vote either in person on Dec. 10, 2003 in Buenos Aires or by proxy.

Though Argentinian Recovery was not a member of the institutional group of investors, it did hold meetings with Multicanal without resolving their issues. To quote the judge, "The record is hotly contested with respect to the course of these negotiations."

Argentinian Recovery rejected Multicanal's offer. Argentinian Recovery alleged Multicanal offered it a better deal if it would support the APE, though Multicanal said it never offered Argentinian Recovery anything extra.

In November of 2003, Multicanal started criminal proceedings against Argentinian Recovery because of its alleged request for better treatment than other creditors.

When Argentinian Recovery learned of Multicanal's action in Argentina, it countered by filing criminal charges against Multicanal in a U.S. court.

After a Dec. 10 vote, it was determined that 68% of the creditors supported the APE and the company met the legal requirements of an APE. The next step was to give creditors time to object, which six did.

On April 14, 2004 the Argentine court overruled all but one of the objections. It ruled that creditors who voted against or had abstained from voting for the APE would get 30 days to choose from one of the three restructuring options.

Gropper's position is that Multicanal's APE meets the requirements for protection under the U.S. Bankruptcy Code, but before he grants Multicanal final protection he wants the Argentine criminal charges proven or dropped. In addition, Gropper found the APE discriminated against retail investors, or non-qualified institutional investors, because they were only allowed to choose cash. He wants this resolved, too.

Multicanal's case number for the APE is 04-10523. The case number for the involuntary Chapter 11 is 04-10280.

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