Parmalat bondholders are battling against vast uncertainties to calculate the potential returns on their investments in the crippled Italian food company, bondholders said.
Parmalat bonds have continued to languish at around a fifth of their face value this week, and bondholders have been growing restive over basic information uncertainties, waiting for a broad outline of a restructuring plan from Enrico Bondi, the government appointed administration commissioner running the company.
Last week an Italian judicial source said former Parmalat finance director Fausto Tonna had given information for the partial recovery of money, but gave no details.
"It's impossible to take a meaningful long position because there's so much uncertainty," said one distressed-debt investor.
Doubt exists over figures such as the size of creditor claims and the total debt of the company as well as sales and profit figures.
"I don't trust any figures coming out of Parmalat," said the investor, "and profit and sales least of all."
With a hole in the accounts estimated at eight billion euros by Calisto Tanzi, Parmalat founder currently in custody, creditors are asking whether the missing money was used to fund losses not detailed in the balance sheet.
"The question is how big is the hole and where the money's gone," said a second distressed-debt investor.
Besides these figures other uncertainties include creditor ranking - which creditor gets paid first - and the restructuring process under a revised Italian insolvency procedure.
The first investor estimated one billion euros of claims senior to unsecured bondholders, while the second said there could still be unknown off balance sheet liabilities ranking ahead of bond debt.
Any debt ranking ahead of bondholders would have to be taken off the enterprise value in calculating returns to creditors.
Creditors and analysts have calculated possible returns to bondholders using the earnings before interest, taxes, depreciation and amortisation multiples and EBITDA margins of peer companies.
Such companies include Dean Foods in the United States, Saputo in Canada and Dairy Crest in Britain, creditors said.
One distressed-debt investor who has previously held positions in Parmalat doubted Parmalat's disclosed 2002 EBITDA figures of 931 million euros and used "low numbers" to estimate a revised EBITDA of 600 million euros. Italian market regulator Consob has asked a court to annul Parmalat's 2002 results.
The investor then applied a low EBITDA multiple of five to estimate an enterprise value of around three billion euros, and a recovery rate of 30 percent on 10 billion euros total debt.
He currently held no long position in Parmalat, and emphasised all such calculations were "guesstimates".
"Back of envelope stuff is all we can do at the moment," he said.
In late December Dresdner Kleinwort Wasserstein's analysts applied an EBITDA multiple of eight to a discounted Parmalat EBITDA to estimate an initial "base case" bondholder recovery rate of 54 percent, assuming 2.5 billion euros of bank debt senior to bondholders and total bonds of seven billion.
"I see no reason to change that calculation until more detailed information comes to light," said Lior Jassur, Head of European High Yield Research at Dresdner Kleinwort Wasserstein, on Wednesday.
Meanwhile a mutual fund manager holding Parmalat bonds bought at face value said on Wednesday he was hoping for a recovery rate of "at least 50 percent" but acknowledged this was subject to revision.
"If reports of 16 billion euros total debt were accurate we'd have to revise this figure down," he said. "But in that event we'd be expecting successful litigation," he added.
Recovery for bondholders could include both a partial cash settlement and an exchange for equity.
The aim of a restructuring would be to leave a sustainable amount of debt on the balance sheet with creditors taking the rest in equity, a source close to Parmalat bondholders said.
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