A group of investors holding a majority of Kennedy-Wilson Inc. bonds is organizing to reject the company's debt exchange offer and demand cash payments instead, according to sources familiar with the matter. The investors, advised by Milbank and Houlihan Lokey, control a majority of three senior bond series that Kennedy-Wilson is attempting to exchange.

Kennedy-Wilson's planned acquisition by a consortium led by CEO William McMorrow and Fairfax Financial triggered change-of-control provisions in the bonds. Under the bond prospectuses, this requires the company to repay notes at 101 cents on the dollar plus accrued interest. Instead, Kennedy-Wilson launched an exchange offer for new bonds with longer maturities and higher coupons.

The bondholders' push back comes as Kennedy-Wilson claims about 19% of 2029 notes, 35% of 2030 notes, and 27% of 2031 notes have already agreed to support the exchange. The organized investor group's refusal to tender could significantly complicate Kennedy-Wilson's acquisition plans and potentially force the company to honor the full repayment provisions.