Something to watch out for if you were a Zenith bondholder
I E-mailed my broker the following message concerning the exchange of Zenith bonds for LG bonds.
"I was a holder of $10000 face value Zenith 6 1/4% convertible bonds. Pursuant to a prepackaged bankruptcy reorganization recently accepted by the bankruptcy court, each $1000 old Zenith 6 1/4% convertible bond was exchanged for a new Zenith 8.19% senior bond worth $483.0917 face value.
I have noted that my account shows an exchange of $10,000 face value old Zenith 6 1/4% convertible bonds for $4000 face value new Zenith bonds. What happened to the fractional value of the new bonds I was supposed to get?
According to a Zenith Aug. 23, 1999 press release, the bondholder approved reorganization plan provided:
"Pursuant to the plan, current holders of the $103.5 million in principal amount of the 6-1/4 percent Convertible Subordinated Debentures will receive $50 million of new 8.19
percent senior debentures maturing in November 2009."
Thus each old $1000 face value bond was to be exchanged for a new bond worth $483.0917 (50 divided by 103.5). I realize most bonds are issued in $1000 face value denominations. However, I assume . . . [you as broker] took the fractional share of each bond due all of its customers who had fractional shares, aggragated them, sold them and distributed the resulting proceeds on a pro rata basis to each customer, i.e., I assume . . . [you as broker] did not aggragate the fractional shares due each customer and keep the proceeds for its own account, which would be a violation of its fiduciary duty to its customers. However, my account does not show such a distribution. When may I expect it? I note the $1000 face value new bond has a market value of $1000 (or so my account so states - which would indicate my pro rata share should be $830.917)
To summarize I had $10000 face value of the old Zenith 6 1/4% convertible bonds. Those bonds under the terms of the reorganization should have been exchanged for $4830.917 face value of the new Zenith bonds. Since bonds are issued in $1000 denominations and I was issued $4000 in new Zenith bonds, I assume the remaining $830.917 worth of new bonds due me was aggragated with all the fractional shares of $1000 new bonds due other customers and sold so the proceeds could be distributed to these customers on a pro rata basis. When can I expect this pro rata distribution or in the alternative a new Zenith bond worth $830.917 face value if bonds are issued in those denominations or the opportunity to purchase a fractional share of a new Zenith bond so I can add that fraction to the $830.917 face value bond currently due me so I can round up to a $1000 bond and have it issued to me?
Thank you for your attention to this matter."
My broker responded:
"Thank you for your e-mail.
I have checked with our Reorganization Dept. on this matter. The money has not been paid out by the company as of yet. They say it may take up to a month before we may receive it. The funds will be credited to your account immediately upon receipt.
If you have any further questions or concerns, please do not hesitate to contact us. . . ."
I must admit I am a little confused by my broker's response. My broker presumably has already received the bonds in question. Why it does not just liquidate the aggregated bonds of its customers due fractional bonds and do a pro rata distribution is something I do not understand? I guess I am missing something here. I have recently contacted my broker for further clarification.
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