Investors in Finova Group got more good news over the weekend, with the troubled commercial lender announcing that it had reached a revised debt restructuring agreement with Berkadia LLC.
Finovas stock closed Monday up 25.8% on news that Berkadia LLC, a joint venture of Warren Buffetts Berkshire Hathaway Inc. and Leucadia National Corp., had offered a bailout of $8.1 billion, sweetening its previous offer of $6 billion. The Scottsdale, Ariz.-based companys creditors committee endorsed the new proposal over a $7 billion plan offered a few weeks ago by General Electric Co. and Goldman Sachs Group that had sent Finovas stock up 19.7%.
The bidding between the two groups started in late February, when Finovas management approved Berkadias $6 billion bailout offer after declining a $2 billion offer by GE Capital and Goldman.
With some $11 billion in debts to banks and bondholders and just $12. 4 billion of assets, Finova filed for Chapter 11 bankruptcy protection in March.
Equity analysts have ceased covering Finova, and on Monday fixed-income analysts were hesitant to comment on the effect of Berkadias most recent proposal.
With the creditors support, Finova management expects to present Berkadias revised plan, which has not been approved by shareholders, at a bankruptcy court hearing scheduled for Wednesday.
Its hard to argue that the most recent offer from Berkadia is not superior to their initial offer, said Matthew Burnell, a fixed income analyst at Merrill Lynch Global Securities.
He said that the note that would be given to bondholders to make up the difference in the face value of bonds under the new offer has a shorter maturity and a higher interest rate.
The revised Berkadia offer would pay creditors 70 cents per $1 up front. Finova would issue new senior notes with an interest rate of 7.5% that would mature in eight years for the balance of the allowed general unsecured claims against it.
The opportunity for some of the debtholders to tender that note for cash also strikes us as an improvement over Berkadias initial offer, Mr. Burnell said.
In a press release Berkadia said that once the plan is in effect Berkshire Hathaway would buy as much as $500 million of senior notes at 70% face value, giving holders who want to sell their notes an additional 21 cents on the dollar. Berkshire would hold notes it receives for four years in exchange for the $1.43 billion Finova bank and bond debt it already owns.
Berkadia has not disclosed the priority of payment in their new proposal. Under Berkadias original offer, Finova creditors would have to wait their turn to be paid.
If creditors have in fact endorsed the Berkadia plan in contrast to the GE plan, thats pretty telling, said Stephen G Moyer, director of research at Imperial Capital LLC, a Beverly Hills boutique firm that specializes in distressed securities.