Dubai World Restructuring - Creditor Push Bank

Frank Kane and Asa Fitch have an article over at Abu Dhabi's The National "Dubai Government hits back at critics of $24.8bn debt plan".  

What I think is the interesting story within that story is that:

1. Apparently unsecured creditors are to receive their interest in pay-in-kind ("PIKs") which means instead of cash they get a note for the amount of interest. It appears the interest notes may be set to the final maturity of the loan. 
2. And, yes, if the unsecured lenders' interest rate is below market and then don't get paid until final maturity their discount is even bigger than just a below market interest rate.  As I've posted before IAS #39 is very very clear a restructured debt that carries an interest rate below the original interest rate gets marked down to the net present value of the estimated cash flow using the original rate on the unrestructured loan (if the asset were held at cost).    The estimated cash flow includes the timing of the receipt of the interest payments.
3. This raises an even more intriguing question about the principal repayment schedule.  If interest is being deferred in PIK securities, it would seem the company has a weak cashflow.  Logically, that would seem to imply that principal repayments might also be paid in PIKs as well.  I still haven't seen a detailed discussion of the amortization schedule.    
4. The unsecured creditors represent US$14.2 billion out of the US$24.8 billion in debt - or roughly 57%.  If they as a group are unhappy, DW has an issue.

What's also a bit puzzling is that with a seasoned chap like Aidan on DW's Team, there should be little surprise in Dubai that there is some criticism now.  The initial euphoria was based on a few big picture headlines - key details were missing from the announcement - the exact tenors, the interest rate, the repayment schedule.  Perhaps, what was interpreted as joy was just  relief that DW was not asking for an explicit "haircut".  But as always the devil is in the details.  As the details are released, there is bound to be some negative reaction.  And if there is still a lack of clarity in the details, then the situation is even more complicated.  It seems from this FT article that perhaps this is the case.

As well, since the Nakheel Sukuk holders are going to waltz home free - not troubled in the least by the rescheduling, only the most optimistic person could believe that this would not cause an objection or two.  While arguments may be made that this was necessary because it will be impossible to get the certificateholders to agree, regular lenders (especially those feeling potential cold winds against their unprotected backsides) have to be expected to protest.  

I posted long ago that despite wishes for a speedy conclusion that this process was going to take a while.   

The next stage is for DW to address concerns.  And perhaps tweak some terms.

The news about Dubai Holdings is going to complicate things particularly as DW's restructuring is dependent on a non inconsiderable cash infusion from the Emirate.  And having set a template with DW, the Emirate will find it difficult to negotiate a less favorable deal for Dubai Holding, if indeed a restructuring is in the cards there.