Bondholders decide Heron's fate: Ronson in line for rich rewards if agreement is reached on pounds 1.4bn rescue plan

HERON bondholders meet in London today for the first of three vital meetings at which they will decide whether to vote in favour of the company's pounds 1.4bn restructuring.

A 'no' verdict at any of the meetings means Heron will be put into liquidation.

The London meeting at the Aldgate Conference Centre in the City will be followed by another in Holland on 30 June and the last in the Netherlands Antilles on 5 July.

Bondholders in each jurisdiction and representing total debts of pounds 450m have to vote 75 per cent in favour of the restructuring for Heron to escape bankruptcy. The rescue plan, the most complicated ever attempted in the UK, has already been agreed by Heron's 82 banks.

Although UBS, the company's financial adviser, has already received many proxy votes, bondholders can still turn up at any of the three meetings and vote, or even reverse their own proxy votes. UBS will announce the result of the London vote this evening. If the rescue plan is approved the courts will have to ratify the scheme, and the formal go-ahead should be given in mid-July.

If the restructuring goes ahead, Gerald Ronson, Heron's founder and present chairman, is poised to be well rewarded. His contract pays pounds 5m over five years, and he and his management team stand to receive 25 per cent of the company's equity if all business targets are met.

Should the restructuring be rejected by the bondholders, Mr Ronson is still in a strong position. City sources suggest he would be delighted to buy his property portfolio back from the liquidators at a knock- down price, just as the UK property market is showing signs of recovery.

Gary Klesch, the bond trader based in London, and Credit Suisse, one of the lead managers of the bond issues, have both criticised the restructuring plan. Mr Klesch complains that the professional advisers who put together the restructuring have already been paid 'obscene' fees of pounds 50m, and have produced no accounts for Heron for the last year, no cash flow projections, no up-to-date property valuations and no US business plan. Worst of all, the plans favour the banks over the bondholders.

This criticism has stung Heron and its advisers, who insist that the plan is fair, that all necessary information has been given, and that the only alternative is liquidation, which would mean the bondholders receiving nothing. One insider said recently: 'Gary Klesch thinks he's playing a skilful game of poker over the Heron restructuring. He is really playing Russian roulette. Liquidation would be bad for everyone.'

It would certainly lead to an avalanche of litigation in Europe and the US, and insolvency specialists from Price Waterhouse, which is advising Heron, insist that the bondholders would receive no payments for years - possibly never.

Mr Klesch and other bondholders respond that such predictions are scaremongering by the banks, who want to pull the bondholders into line and a vote for the reconstruction. The company thinks this is unfair. If the bondholders vote down the plan it is difficult to construct any scenario other than liquidation.

Following a 'no' vote, the directors would meet and decide that the company was trading insolvently without any reasonable prospect of paying its debts as they fall due. In order to avoid being penalised for wrongful trading under the Companies Act, the directors would almost certainly put the company into liquidation.

Another alternative - administration - is far too expensive a rescue procedure for the banks to countenance funding. They feel they have poured enough money into Heron already.

Not that the restructuring proposal is going to give the bondholders milk and honey, as some of Heron's bankers admit. Bondholders get senior debt, junior debt and shares. Even the staunchest fans of the scheme acknowledge that the senior debt is the only thing that matters for the next few years.

Some advisers privately admit that the first interest payment on the senior debt may be passed next year. But as one bondholder said last week: 'A lousy deal is better than no deal at all.'

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