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Bankers, Government Sign Restructuring Pact for Koor

September 27, 1991

TEL AVIV, Israel (AP) _ A group including U.S. and local banks, the government and Israel’s labor federation on Friday signed a multi-million dollar restructuring agreement to rescue Koor Industries, the nation’s largest conglomerate.

The package, signed at Koor’s headquarters here, is designed to end a financial crisis that began in October 1988 when a Koor subsidiary defaulted on a $20 million loan to Bankers Trust of New York.

Since then, the rescue effort has been delayed by bickering between banks and the government on the size and timing of the package.

Benjamin Gaon, Koor’s president and chief executive, said the refinancing agreement concluded Friday marked ″the birth day of a new Koor.″

But he acknowledged the conglomerate, with annual sales in excess of $2.5 billion, will have to fight to regain profitability.

″The chapter closed today was difficult and exhausting,″ Gaon said. ″But we estimate that the coming period will not be easy either. And we will have to make tremendous efforts in order to establish Koor’s profitability and to realize the latent potential of the company.″

Philip Zegarelli, a vice president at Manufacturers Hanover of New York who was the lead negotiator for foreign banks, said 31 banks from at least 12 countries were involved.

″It has taken three years, but it was well worth the effort,″ Zegarelli said. ″There is a sharing, a linkage between Koor, the Israeli banks and also the non-Israeli banks. There is now a better understanding.″

Koor, which manufacturers products ranging from refrigerators to electronics and weapons, employs 19,500 workers.

Before it began selling subsidiaries and closing unprofitable units three years ago in an effort to stave off bankruptcy, Koor employed some 32,000 people.

Koor reported a net loss of 112 million shekels, or nearly $50 million, for the first half of this year on sales of 2.5 billion shekels, or $1.08 billion.

According to a statement issued Friday, U.S. and Israel banks will write off $240 million of Koor’s $800 million debt and reschedule repayment of much of the balance. Some of the outstanding debt will be converted to stock.

Israel’s Finance Ministry agreed to guarantee a new $100 million loan from Israeli banks to the struggling conglomerate and will invest $50 million to help Koor cover interim loan financing and past-due taxes, the statement said.

Hevrat Haovdim, the holding company of Israel’s Histadrut labor federation which currently has controlling interest in Koor, will invest $25 million, it added.

After the restructuring, Hevrat Haovdim’s holdings in Koor will be reduced to 25.8 percent from the current 75 percent, the statement said.

In addition, the statement said, $105 million of notes issued to U.S. investors and debentures sold in Israel will be exchanged for cash or new securities.