Praktiker AG Bond – Greek haircut anyone ?

In December, I had speculated at what level the Praktiker bond could be interesting. At that time, the bond traded at 38%. During the 2012 rally, the bond almost doubled close to 70% before drifting lower to around 58% in the beginning of the week.

However yesterday Praktiker announced that they will ask the bondholders to accept a “voluntarily” a cut in the coupon from currently 5.875% to 1% in order to “participate fairly” in the burdens for a restructuring.

The bond didn’t trade today, but some broker quotes (without volume) showed prices 34/40 bid/ask.

The German press release says, that potential new investors want to see sacrifices form bondholders and that they are “investigating” a capital increase.

What I don’t understand is the sequence of actions. Those who gain the most from the restructuring have to “sacrifice” first. So the first step would be a capital increase and then asking the bond holders and other creditors. With the current sequeunce of events, Praktiker will most likely never issue a unsecured bond again after this.

As I said in the last post, there is no reason why bondholders should accept anything less than the conditions in the prospectus.

Of course this should be clear to the Management. So is this just a “token” announcement to fullfil some formal requirements or is something else going on ? I do not know.

Technically, they need at last the mojority of 50% of the bondholders in the first round. If this doesn’t work, in the second rounfd, the majority of a minimum 25% of bondholders (effectively 12.5% plus one bond) could then agree to the changes on behalf of all bond holders.

I tried hard to construct any “game theory” situation where this announcement makes any sense. The only one I came up was that management wants to improve the position of the new investors via the bondholders and that they don’t plan to go back to the bond markets for a long time. Addiitonally they have to be sure that a large block of bondholders is voting in their favour for whatever reason.

In any case, as I don’t really understand what is going on, I wil not be tempted to invest anyway, no matter what the price is. The old saying goes “If you don’t know who is going to be the looser, it is most likely yourself”. So for the time being, the senior bond doesn’t look like a winner.

But ut is still a very interesting learning experience for potential distressed debt investments.

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