A group of bondholders holding over 65% of a $950 million issue by Millicom International Cellular has hired counsel and a financial advisor, and plans to reject an exchange offer made by the company on Jan. 21. "It's very far removed from anything that would be remotely acceptable in terms of proper allocation of value," says Tony Princi, partner at Orrick, Herrington & Sutcliffe, counsel for the bondholders.
Millicom, a global wireless carrier based in Luxembourg, has offered to exchange its 13.5% senior subordinated discount notes of '06 for a combination of 9% senior notes of '05 and convertible bonds that would value the bonds at approximately two-thirds of their original value. As was the case in a recent exchange offer by Qwest Communications, bondholders accepting the offer would move ahead of the holdouts in the line of creditors in the event of an a subsequent bankruptcy filing.
One person close to the bondholders says Millicom wants to take advantage of depressed values in the telecom market to buy back some of its debt cheaply. A call to Marc Beuls, Millicom's ceo, was referred to Andrew Best, an official at Shared Value, a London-based firm which handles investor relations for Millicom. Beuls would not comment on the reason for the exchange.
A number of bondholders were extremely unhappy with the terms of the Qwest offer, but accepted nonetheless, because they did not want to be "crammed down" in the capital structure. Princi sees a different outcome this time around. "What happened with Qwest has made the entire fixed income community sensitive to the potential way that value can be taken away from bondholders. The odds a company can do that again are more difficult: Fool me once, shame on you. Fool me twice, shame on me."
One portfolio manager in the bondholder group says that it has been far easier to organize in this instance because the Qwest offer involved roughly $10 billion in bonds and a far more disparate group of interests, from distressed investors to insurance companies. People close to the bondholders say some of the same names are involved with Millicom that were involved in the Qwest situation. They say Cerberus Partners, MacKay Shields, and Franklin Templeton Investments are among the larger bondholders in the group, which has hired Houlihan Lokey Howard & Zukin as a financial advisor. Alan Fragen, the Houlihan official representing the group, declined to comment.
Jim Millstein, a partner atLazard Frères, which is advising Millicom on the exchange, says he has not yet heard from the bondholder group. "These are sophisticated holders. We've offered them a package of debt, equity and cash in exchange for their existing bonds. If they don't want to tender, they won't tender. We're not twisting their arms."