Bondholders Force $1 Billion Debt Restructuring on Pacific Oak BVI Company
This week’s ruling in the case of the U.S. income-producing real estate company Pacific Oak could prove to be one of the most significant events in recent years in Israel’s domestic debt market. In a relatively rare move, the court approved a debt restructuring plan drafted and led by bondholders, despite prolonged opposition from the company’s management, its directors and its founders. Beyond the immediate significance for Pacific Oak’s creditors, the decision could reshape the balance of power between Israeli investors and foreign BVI companies that raised billions of shekels here, giving local creditors a stronger tool in future battles over their money.
Despite opposition from the directors who served at the company and the executives who founded it, and after many months of legal proceedings, the Tel Aviv District Court approved the debt arrangement proposed by the bondholders of the BVI company Pacific Oak. The approval came after the composition of the board was changed, the company itself withdrew its opposition to the arrangement, and the court rejected a series of additional objections filed by former directors and two company founders. Judge Hagai Brenner of the Tel Aviv District Court dismissed the opponents’ claims and approved the arrangement definitively, despite the fact that it was not fully agreed by all sides, but rather was initiated by the bondholders themselves and effectively imposed on the company after receiving creditor support and court approval.
The bondholders, to whom the company owes about 1 billion shekels, will now have to wait until June 2028 for the final repayment of the two bond series still outstanding. Series B repayment, 401 million shekels of which 13 million shekels is interest, was due in January this year and the company did not meet it. In addition, about 38 million shekels were due in February as an interest payment on Series D, whose principal stands at 587 million shekels and is supposed to be repaid in three annual installments between February 2027 and February 2029. The debt restructuring merges the two series into a single payment in June 2028.
According to data from Pradata Capital, updated for March, Phoenix mutual funds held about 56 million shekels in the two Pacific Oak bond series. Other prominent institutional holders include Meitav with about 44 million shekels, Migdal Insurance with about 27 million shekels, and Harel with about 24 million shekels.
In return for postponing the debt repayment, the bondholders received a series of benefits and protections. The interest on Series B debt will rise from 5.8% to 11%, the same as Series D, and later increase to 11.5%. Total interest over the life of the restructuring amounts to about 300 million shekels in addition to the total principal, which stands at 975 million shekels. In addition, they will receive liens on some of the assets and greater influence over the company’s management through the appointment of directors on their behalf and involvement in asset sale processes intended to enable debt repayment.
Even among the institutional investors, however, there are no illusions about the company’s condition. One of them told Calcalist that, “The company’s situation is not good, both in terms of asset quality and the debts it took on. The debt restructuring, even if it does not include a haircut, mainly buys time for the holders, but does not guarantee that the debt will indeed be repaid in full.” Another institutional source said, “The alternative was a rapid sale of the assets. In the current market, that would have amounted to a fire sale. In the long term, the dollar may strengthen, interest rates may fall and the U.S. office market may recover. Since the company needs to realize assets to service the debt, it is better to wait, and that is exactly what the arrangement allows.” A third source added, “The arrangement also gives the company time vis-a-vis other creditors in the U.S., because the risk of liquidation decreases.”
BVI companies are companies incorporated in the British Virgin Islands for the purpose of raising debt in Tel Aviv. Many of them benefited from complex control structures that made it difficult for local creditors to exert pressure.
Most debt restructurings carried out in the past in BVI companies that raised debt in Israel were based on negotiations and agreements between the bondholders, the company and its owners. In many cases, the owners even took an active part in the arrangement by injecting cash, transferring assets or providing various guarantees. In Pacific Oak’s case, the picture was completely different. The court approved an arrangement proposed by the bondholders, despite opposition from key figures who were tied to the company and managed it over the years.
Judge Brenner’s ruling may therefore provide significant support to creditors and other creditors of BVI companies in the future, and show that even when company management or interested parties oppose a restructuring, it can still be imposed through legal proceedings. This is a message of importance for dozens of foreign companies incorporated in the British Virgin Islands (BVI) that have raised billions of shekels in Israel over the years. Many of those companies benefited from complex control structures that made it difficult for local creditors to apply effective pressure in times of crisis.
Pacific Oak, which holds office and rental housing assets in the United States, was incorporated in 2015 for the purpose of raising debt in Tel Aviv. It is controlled by the U.S. REIT Pacific Oak Strategy Opportunity REIT, managed by the founders Peter McMillan and Keith Hall. The two served until late 2025 and early 2026 as president and CEO of the bond company, and at the same time also controlled the management company Pacific Oak Capital Advisor, which provided management services to the issuer until early this year and was replaced following pressure from the bondholders.
The ownership structure, under which control of the company was exercised through the REIT rather than directly, allowed McMillan and Hall not to be considered formal owners. As a result, it was much harder to formulate a debt restructuring plan that included an asset contribution or cash injection from the owners, as is customary in many other cases. According to the bondholders, the two benefited for years from the fruits of control of the company through the REIT and the management company, but refrained from taking part in efforts to resolve the crisis after it ran into difficulties.
Pacific Oak’s difficulties arose from a combination of several factors. The U.S. office crisis after the coronavirus pandemic, the sharp interest rate hikes that began in 2022, and the decline in the value of many properties hurt the company’s ability to refinance debt and generate sufficient cash flow. Added to this were high management expenses transferred to companies related to the controlling owners, including 15 million dollars in each of 2022, 2023 and 2024, and about 9.6 million dollars in 2025, after some payments to one of the companies were halted.
In June last year, a going-concern warning was added to the company’s financial statements, and in September S&P Maalot announced a downgrade of the company and its bonds. The two events created grounds for immediate repayment of the debt and led to talks on a restructuring that did not materialize.
At the beginning of the year, the bondholders, through attorneys Raanan Klir and Alon Binyamini of EBN, petitioned the court and argued that the board members were deliberately delaying the restructuring in an attempt to obtain immunity from future lawsuits as a condition for their agreement. Despite the opposition, the court approved convening a creditors’ meeting to vote on the arrangement. In late April, the creditors approved the plan by the required majority, and the decision returned to Judge Brenner’s desk.
The resigned directors, together with McMillan and Hall in their capacity as former company executives, tried to block approval of the arrangement, arguing that they were party to a request to approve a class action filed against the company and its officeholders, and that because they had been granted an indemnity letter by the company, each of them should be regarded as a creditor of the company in the amount of 145 million shekels, the amount of the class action claim. Under their approach, these sums should have been taken into account when calculating the required majority at the creditors’ meeting, which could have undermined the validity of the vote. Judge Brenner rejected the argument.
After the claims were dismissed, and once the company itself had already supported the arrangement following the board change, the court approved the arrangement definitively.
One of the arrangement’s provisions allows Pacific Oak in the future to issue two new bond series in order to refinance loans it took out in the United States. The idea was first raised by the bondholders at the end of 2025 as a possible solution to the company’s liquidity distress. However, last month Pacific Oak, with the bondholders’ consent, entered into an agreement to receive a new 216 million dollar loan in order to repay existing loans from Kliemark, which specializes in financing distressed companies, making a new bond issuance unnecessary, לפחות for now.
