Central European Distribution might get $100 million to repay 3% notes

By Angela McDaniels

Tacoma, Wash., March 13 - Central European Distribution Corp. is considering a possible strategic alliance with Russian Standard Corp. and Roustam Tariko. Under the terms being discussed, the company would receive up to $100 million and use that to repay or redeem its 3% convertible senior notes due 2013, according to an 8-K filing with the Securities and Exchange Commission.

The company would also convert up to $102.5 million of the 3% convertibles held by Russian Standard and Tariko at par plus accrued interest into new debt securities due 2016 (the "rollover notes").

The remainder of the 3% convertibles would be paid at maturity through the issuance by the company to Russian Standard of new debt securities due 2016 (the "backstop notes").

The rollover notes and the backstop notes are expected to bear interest at rates that will increase annually, but in each case yielding an internal rate of return of about 6%.

As part of these proposals, Russian Standard and Tariko would receive three seats on the board of directors and obtain various veto and governance rights such as the right to veto certain restructuring transactions and certain acquisitions or business combinations.

The $100 million initial investment would be made in the form of the purchase of $30 million of newly issued shares of the company's common stock, which would increase Russian Standard's ownership of the company to about 16%, and the purchase at par of $70 million of new 3% one-year debt securities.

The new debt securities would be callable and putable. Upon a put or call, they would be exchanged for shares that would increase Russian Standard's ownership to about 28%. The conversion rate would be $5.25 per share.

The board has authorized company management to negotiate definitive documentation based on the proposal.

The company said it has been reviewing its strategic alternatives in light of its upcoming financial obligations.

In addition to the proposed transactions above, Russian Standard and the company will continue their discussions about the potential assignment of some of the distribution rights of Roust, Inc., a Russian distribution business owned by Russian Standard, to Central European Distribution.

Central European Distribution is an alcohol and spirits distributor based in Mount Laurel, N.J.

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