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BCE Bondholders Article
May 2, 2007
Don't hurt bondholders, BCE urged
Our assets devalued, investor says. Shareholders reap gains from takeover talk, but debtholders lose: investment manager
PAUL DELEAN and ALLISON LAMPERT, The GazettePublished: Wednesday, May 02, 2007
A prominent investment manager is urging directors of rumoured takeover target BCE Inc. not to sabotage the interests of BCE bondholders to appease shareholders.
Benoit Durocher, president of Addenda Capital Inc., which holds BCE bonds worth several hundred million dollars, said bondholders have seen their assets devalued and the ratings downgraded because of uncertainty surrounding the proposed privatization of BCE.
If large amounts of debt were used to finance such a deal, existing bondholders would consider the transaction "extremely inequitable" and similar to an "expropriation without compensation," Durocher said in a letter addressed to Donna Soble Kaufman, head of BCE's strategic oversight committee.
"We're confident the board of directors will, under the circumstances, exercise its fiduciary responsibilities in order to avoid having one category of interested parties, the shareholders, profit in an exceptional way to the detriment of another category, the bondholders," wrote Durocher, whose company manages $30 billion in assets and is one of the country's largest bond managers.
Sebastien Rheaume, vice-president for corporate bonds, said about $1 billion has been eroded from the value of BCE bonds since rumours of a takeover began in March. "There's been a transfer of value from the bondholders to the shareholders," he said.
Rheaume had no specific suggestion on how BCE officials could better structure the deal to be more equitable to bondholders.
"The quick answer is to put less leverage," he said. "BCE has been under tremendous pressure to up stock value, but it shouldn't be at the expense of bondholders."
BCE shares have jumped from just over $30 to as high as $40.31 in the last five weeks as the privatization proposal was made public.
The stock closed at $37.30 yesterday in Toronto.
The communications company is scheduled to report its first-quarter earnings today.
? The Gazette (Montreal) 2007