Add billionaire investor Carl Icahn to buyout tycoon Leon Black’s growing list of troubles.
Icahn, who was pals with Black in his days as a corporate raider, is now suing Black’s Realogy Corp. over a controversial debt deal announced last month.
The Parsippany, N.J.-based real-estate broker, which Black’s buyout firm Apollo bought for $6.6 billion in April 2007, has come under tremendous financial pressure amid the worst housing crisis since the Great Depression.
In an effort to stave off default of some of the bonds coming due, Realogy, which owns Coldwell Banker and Century 21 brands, recently announced plans for a debt exchange.
Under the terms of the agreement, Realogy would exchange about $1.1 billion worth of its bonds at a roughly 50 percent discount for the new offering. And in return for accepting the discount, the debtholders would get other perks, such as moving up in line when it comes to getting paid if the company goes broke.
It’s this point that has Icahn seeing red. He owns Realogy bonds through his investment vehicle, High River Limited Partnership, and he thinks the deal unfairly pushes his bonds to the back of the repayment line, according to a lawsuit filed in a Delaware court.
This “leap-frogging,” as the lawsuit calls it, is particularly troublesome given growing signs that Realogy is in serious financial trouble, the document says. In the event of a bankruptcy, certain groups are paid out first, starting with creditors and moving on to senior debtholders. Equity holders are paid last.
The suit accuses Realogy’s management of simply delaying “what now appears to be the inevitable failure of Realogy,” according to the complaint. Indeed, Realogy’s unsecured debt is trading at 18 cents to 20 cents on the dollar, suggesting investors don’t have high hopes they will be repaid upon maturity.
The suit, which pits the two billionaires in opposite corners for the first time in recent memory, seeks a court order barring the transaction.
Black was Icahn’s investment banker at Drexel Burnham Lambert in Icahn’s corporate raider days of the 1980s. Black helped Icahn’s attempted takeover of Phillips 66 in 1983 by coming up with the now infamous “highly confident letter,” which allowed Icahn to raise the capital he needed to make the acquisition.