Banks agree to extend Centro's $5bn debt Bridget Carter | December 17, 2008 Article from: The Australian
BANKS last night agreed to hand a lifeline to Centro Property Group with a two-year extension of debt and a provision for equity.
After 48-hours of intense negotiations, the group's banking syndicate agreed to give Centro two years to repay $4 billion in loans that were due this month and see the remaining $1.05 billion replaced by a hybrid security.
The struggling shopping centre owner's $5.05 billion of debt that was to expire on Monday has been extended for four weeks, while the 23 financiers complete the paper work for the agreed long-term deal.
"We decided the best option was to work with banks for a provision for equity," chief executive, Glenn Rufrano said last night. "They would become an equity provider rather than (Centro) looking for that within the market."
Mr Rufrano also flagged a company break-up in the long term when the business was in a more healthy state. He defended the fact that no distributions would be paid until the loan expired.
Distributions were also unlikely to be paid before the conversion of the hybrid securities.
"Whether we sold assets or raised new equity, dilution was there," Mr Rufrano said. "This is the best deal we can get from our banks. To be very candid the option if we could not strike a deal was administration."
Mr Rufrano said assets would continue to be sold at a time when they represented value for shareholders.
"We may have some smaller transactions in the US and here. We are finding values are down. We have taken down the US asset (values) ... we do expect more decline in assets in Australia from the US because there seems to be a time lag between the two (countries)."
The $1.05 billion hybrid security would be senior secured convertible bonds subscribed for by the Australian syndicate with a seven-year maturity date and the potential for conversion into ordinary stapled securities. All interest payable on the hybrid securities was expected to be capitalised, Centro said, with conversion to ordinary stapled securities subject to various conditions.
Meanwhile, the remaining $4 billion debt had been extended until December 15 2011.
Centro's stapled securities equivalent to 14.9 per cent of existing issued securities will be issued on or before January 15 to the Australian lenders and the US private placement noteholders on a pro rata basis at market value.
Meanwhile, a further $US1.3 billion ($1.94 billion) debt linked to Centro's joint venture with Centro Retail Trust, Super LLC, has also been extend to December 31, 2010, with a further $US370 million to be provided by lenders.
An analyst said the long-term bank extension was not surprising, saying there was a 50-50 chance it could happen: "It makes sense, as long as interest coverage is healthy. A lot of banks have very high exposure to property. To put this company into default and liquidate the assets would cause firesale pricing."
Centro owns 777 shopping centres and has so far collected more than $400million from asset sales. It has had its debt deadline extended five times since it was brought to its knees 12 months ago.
Its exorbitant gearing level of 70 per cent, left it scrambling to refinance $3.9 billion worth of maturing debt in December last year. As a result, it slashed profit forecasts and froze withdrawals from two of its managed funds. The company's shares dived from $5.70 to 42c as a consequence of all the turmoil.
The shopping centre owner's deadline to pay back about $6 billion worth of debt expired at midnight on Monday and an official announcement surrounding the debt extension was expected either late last night or before the market opens this morning when the company's trading halt will be lifted. Centro Properties securities last traded at 8.7c.
Ends.
Cheers, Pie :)
CNP Price at posting:
12.0¢ Sentiment: None Disclosure: Held
