Poland's Central European extends early deadline in exchange offers

By Susanna Moon

Chicago, March 13 - Central European Distribution Corp. and its subsidiary CEDC Finance Corp. International, Inc. pushed back the consent date in the exchange offers for their outstanding 3% convertible senior notes due 2013 and two series of senior secured notes due 2016.

The consent deadline was extended to 11 a.m. ET on March 22 from 11 a.m. ET on March 14.

The exchange offers will end at 5:59 p.m. ET on March 22, as scheduled.

As noted before, the company is soliciting consents from holders of the notes due 2016 for amendments to the notes and holders of all the notes to approve a backup Chapter 11 plan of reorganization.

If the company obtains consents from the holders of at least 90% of the outstanding notes due 2016, it will pay holders who deliver consents under the offer a fee of 0.5% of the principal amount, according to a press release.

Amended for Roust terms

The companies began the exchange offers on Feb. 25, prompted in part by the upcoming March 15 maturity of the convertible notes.

Separately, a committee of 2016 noteholders and Roust Trading Ltd., a major Central European investor, proposed an alternative to the company's exchange offers, as previously noted.

On March 11, the companies amended the exchange offers to reflect terms agreed to and supported by the company, Roust and a steering committee of holders of about 30% of the outstanding principal amount of CEDC Finance's notes due 2016, according to a previous press release.

The exchange offers were amended as follows:

• Roust will acquire 85% of the equity of Central European in exchange for (i) $172 million in cash, the proceeds of which will be paid by Central European to holders of the notes due 2016, and (ii) the compromise of a $50 million secured credit facility previously provided by Roust to Central European;

• Holders of the notes due 2016 who tender their notes will receive (i) the option to receive a total of $172 million in cash, from the proceeds of the Roust investment, under a Dutch auction procedure and (ii) to the extent not accepted in the cash option or at the option of individual holders, their pro rata share of (a) new secured notes due 2018 in the aggregate principal amount of $450 million and (b) new convertible secured notes due 2018 in the aggregate principal amount of $200 million;

• Holders of Central European's 3% convertibles who tender their notes and Roust, as holder of $20 million principal amount of unsecured notes, together will receive their pro rata share of 10% of the equity in Central European; and

• Central European's existing stockholders will have their stock holdings diluted to 5% of the equity in Central European.

The exchange offers contemplate a financial restructuring that will reduce Central European's and CEDC Finance's debt by up to about $635 million, according to the previous release. The company previously said it believed that a restructuring would improve its financial strength and flexibility and enable it to focus on maximizing the value of its brands and market position.

Potential bankruptcy

The company's "current enterprise value is insufficient to cover the debt and hence distributions to creditors will not be enough to pay them in full," a previous press release noted.

The exchange offers are subject to a minimum tender condition. If the company receives enough tenders, it may complete the exchange offers. Otherwise, the company said it may choose to complete the restructuring through a fallback pre-packaged plan of reorganization through a Chapter 11 filing in the U.S. Bankruptcy Court for the District of Delaware.

"Absent requisite support for the plan, the company may be forced to explore other immediate alternatives," the release said.

Any filing would be limited to Central European and CEDC Finance. None of the company's Polish, Russian, Ukrainian or Hungarian operations would become the subject of any insolvency proceedings.

In this scenario, the company expects that all of its operations would continue without interruption in the ordinary course, including the payment of all employee, vendor and other obligations.

The treatment of the creditors and stockholders would be the same under the Chapter 11 plan as in the amended exchange offers, assuming that the class of unsecured notes votes to accept the plan. If the votes are not obtained, holders of the unsecured notes and existing equity would receive no recovery.

Original offer

Under the original offer, for each $1,000 principal amount of 9 1/8% senior secured notes due 2016, holders would receive 16.52 new common shares and $508.21 principal amount of 6½% senior secured notes due 2020, according to the companies' original press release announcing the offers.

For each €1,000 of 8 7/8% senior secured notes due 2016, holders would receive 22.18 new common shares and $682.37 principal amount of 6½% senior secured notes due 2020.

Holders would receive 8.86 new common shares in exchange for the 3% convertible notes.

Assuming 100% participation in the exchange offers, holders of the notes due 2016 collectively would receive 65% of the company's common stock. The notes have an outstanding principal balance of about $957 million and, assuming an exchange rate of $1.3427 to €1.00, would be replaced with $500 million principal amount of new 6½% senior secured notes due 2020.

Holders of the convertibles, with an outstanding principal balance of about $258 million, and Roust, which is owed $20 million of unsecured notes, together would share pro rata in 10% of Central European's common stock. A separate $50 million secured credit facility provided by Roust would be converted into 20% of Central European's common stock.

Interest on the $450 million of new secured notes would be 8% per year, increasing to 9% in year two and 10% after that.

Interest on the $200 million of new convertibles would be 10% per year, payable in cash or in kind, convertible after 18 months into 20% of Central European's equity, increasing to 25% if converted in 2015, 30% if converted in 2016 and then 35% if converted in 2016 or thereafter.

Garden City Group (800 878-1684 or 614 763-6110 direct-dial toll international) is the information and exchange agent.

Warsaw-based Central European Distribution is a producer of alcoholic beverages.

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