US trust buys $209m Centro note from JPMorgan Abstracted from The Australian Financial Review Inland American Real Estate Trust has purchased a Centro note at a 7.2 per cent discount for $US140.8 million ($A209 million) on 4 November 2008. The note was held by JP Morgan Commercial Investment and was secured by Centro's US shopping centre assets. Centro has put $A200 million of assets in Perth up for sale
Prefer Gottliebsen's take but here's Kohler's
7:44 AM, 7 Nov 2008 ALAN KOHLER Director assisted suicide Until this week bankers to the big four Australian corporate disasters – Allco, Babcock & Brown, Centro and ABC Learning – were like gunfighters in a western: standing in a circle, each with his gun pointed at the next man. If one shoots, they all die.
The bankers seem to have been saying to each other: if you pull the pin on the one I’m exposed to – say, Allco – then I’ll bring ABC or Babcock down and you’ll be coughing blood as well. It was a case of Mutually Assured Destruction – a cold war.
Now two of the four have fallen, but it wasn’t the banks that pulled the trigger: it was the directors, playing the odds between responsibility to their stakeholders – shareholders and creditors – and to their own families.
They finally decided that the personal risks had become intolerable.
In each case the directors brought in voluntary administrators before the banks appointed receivers. If someone other than those in the circular stand-off pulls the trigger, does that mean the cold war has turned hot? We’ll find out soon.
It is significant that the appointment of administrators to Allco was made on November 4, which is just five months and 28 days since a fixed and floating charge over the company was given to Commonwealth Bank on May 6 to cover its $170 million exposure. The charge was later assigned to Westpac, which is owed $200 million.
Security provided within six months of the appointment of a liquidator can be set aside by a court on application of the liquidator (the date of appointment is taken as the date on which a voluntary administrator is appointed).
The massive Bell Resources judgement issued recently places liability on directors who provided security to banks where the company was insolvent (Directors in the twilight zone, November 6). However if the security is set aside by a court on application by a liquidator because it was given within six months of his appointment, then they are off the hook.
That may explain why Allco directors chose Melbourne Cup Day for the appointment of administrators, in addition to the reasons spelt out by my colleague Stephen Bartholomeusz in his piece on Wednesday (Behind the Allco scuttling, November 5).
More importantly for unsecured creditors and shareholders, if the bank’s security is set aside because it was within the six months, and the banks become unsecured creditors, it means their $370 million goes back into the pool.
That creates extra value for unsecured creditors – including shareholders, if they become creditors under the Sons of Gwalia precedent, which they will be trying to do.
Shareholders of both Allco and ABC Learning, represented by the litigation funder IMF Australia, will soon sue both companies for misleading and deceptive conduct and failing to disclose market sensitive information, which under the Sons of Gwalia decision would allow them to be upgraded to the status of creditors.
Fixed and floating charges were also provided to the banks by ABC Learning directors within the past six months. It is a very common practice by directors of distressed companies looking for extra cash to stay alive.
In Allco there are two alleged failures to disclose that will be tested in court:
1. That $1.87 billion in debt that was listed under long-term debt in the 2007 accounts, should have been described as short-term debt because it was revealed in February that the money was due and payable;
2. That the company failed to inform the market of the clause in its debt covenants that meant a large amount of debt was repayable within three months of the market capitalisation falling below $2 billion. That happened briefly on December 18, and then again on January 9. It will be alleged that the market was not informed until February 25.
The details of the forthcoming ABC Learning class action are not known at this stage, and the situation is clouded by the long suspension of trading in the company’s shares while the new auditor, Brian Long of Ernst and Young, sweated the board and the old auditors over past accounts. There is much to be revealed yet about ABC.
Then there’s Centro and Babcock. The delicate balance of the big four Australian problem companies has been broken, so the prospects of these two continuing to be supported by their banks has diminished.
If they go under, there are likely to be two more sets of actions under the Sons of Gwalia rules, with shareholders trying to become creditors as a result of a failure to keep the market informed.
Actually, it would be a rare corporate management that publicly confesses everything, at every stage of the company’s gradual demise.
In fact it wouldn’t be hard to persuade yourself that you have a responsibility to conceal, because to reveal all when the market is jittery would be to ensure the very catastrophe you’re trying to avoid.
Not revealing that there’s a hiccup with the debt repayment schedule could be seen as the right thing to do if you’re convinced you just have a short-term problem.
But the Sons of Gwalia judgement, which allows shareholders to become creditors if there was any failure to disclose something, now raises the stakes.
Other judges are now going to have several opportunities to refine it.
CNP Price at posting:
7.5¢ Sentiment: ST Buy Disclosure: Held
