Heavily indebted companies owned by private equity firms, including Harrah’s Entertainment and Realogy, are asking their bondholders to accept big cuts in the value of their investments or risk falling behind other creditors in getting repaid. Such offers are allowed under a provision of the relevant debt issues called an “accordion feature” – which says the company can issue additional senior debt and relegate existing bondholders to a more junior position in the capital structure. These offers are expected to become more common as the economy contracts and credit markets remain closed to heavily indebted companies. Most bondholders are expected to sign up for these deals amid growing concerns about the health of issuers like Realogy, a real estate brokerage taken private by Apollo Management, and Harrah’s, a gaming company owned by Apollo and TPG. Realogy is giving bondholders the chance to own a low priority claim worth 100 cents on the dollar or a higher priority claim worth only 50 cents on the dollar. The Harrah’s deal is similar, but its terms are more complex.

This entry was posted by Gwen Robinson on Tuesday, November 18th, 2008 at 5:38 and is filed under Capital markets, Private equity. Tagged with apollo, Harrahs Entertainment, realogy, tpg. Edit this entry.