Fox Bondholders Are Pushing Back on Disney’s Exchange Offer

(Bloomberg) -- Walt Disney Co. is looking at ways to accommodate a group of 21st Century Fox Inc. bondholders that say they are being wronged by a bond exchange deal as the two companies prepare to combine, according to a person familiar with the matter.

Disney has offered to pay holders of $18.1 billion of Fox debt a small fee in exchange for their giving up bondholder protections known as covenants, according to research service Covenant Review. Investors that agree to the new terms also won’t be able to sell their securities until Disney’s acquisition is completed, which is slated for the first half of next year.

The group of noteholders, represented by corporate debt trade group Credit Roundtable, is working with investment bank Houlihan Lokey to help advise it, said David Knutson, a buyside analyst who is a co-leader of the advisory board to the Credit Roundtable. The group’s biggest objection is being unable to trade the bonds until the Disney acquisition closes, he added. That’s problematic for mutual funds that are required to hold securities that trade often and have limits on how many illiquid bonds they can hold.

The banks advising Disney are trying to come up with a mechanism for investors to be able to trade securities, according to a person with knowledge of the matter, who asked not to be identified because the matter is private. For example, participants in the exchange that want to sell their bonds could be allowed to withdraw from the exchange, while leaving the consent behind. That would amount to the new owner of the bonds essentially automatically consenting to the exchange, according to the person.

Fox America

The exchange offer applies to 21st Century Fox America Inc., Fox’s main issuing unit, and there are three sets of securities that need to approve changes to their indentures, or lending agreements. Holders of a majority of the notes for each set need to approve the changes.

The Credit Roundtable is working to see if it has enough support to block any of the three proposed exchanges, which could force Disney to offer better terms. Even if the group can’t block the exchange, it is registering its disapproval with Disney and the banks advising the company, in particular Citigroup Inc. and JPMorgan Chase & Co.

Representatives for Citigroup, Houlihan Lokey, and JPMorgan declined to comment. A representative for Fox referred queries to Disney, which didn’t immediately provide comment.

If holders consent to the exchange by the early deadline of Oct. 19, they’d receive $1 for every $1,000 in principal that they hold, according to a statement. Disney is planning to buy Fox in a $71.3 billion transaction.

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