cnp has time to burn

i read this article tonight on Business Spectator by Stephen Bartholomeusz. It is excellent and realistically demonstrate that CNP will be given the extension to september. Here it is for all holders

Commentary
7:22 PM Apr 30, 2008



Stephen Bartholomeusz

Centro has time to burn


The seven-day extension granted to Centro Properties by its lenders may create the impression of brinkmanship but one of the issues that caused it is apparently an argument between the banks about how generous to be to the struggling group.

Today was supposed to be a deadline imposed by Centro’s Australian bankers and its US bondholders for the group to come up with a satisfactory plan to recapitalise itself. Over time, however, it actually became a deadline for the banks to agree to an extension of the current moratorium on repayment of $4 billion of debt until September 30. The consequences for the banks of not extending would be unpalatable.

Centro’s US bankers had already agreed to give it until the end of September to come up with a plan, conditional on the other lenders also approving that extension.

As it happened, all the local lenders are said to have agreed to a September deadline. In fact, most of them apparently wanted to go further and give Centro and its new chief executive Glenn Rufrano until December 31 to come up with an acceptable response to Centro’s distressed circumstances. One bank, however, apparently came up with a number of last-minute requests in relation to documentation that forced the one week extension.

The fact that the local banks are even contemplating a new deadline beyond September is significant because it indicates that they now fully appreciate their own plight.

The impact of the extra time would probably have been equally symbolic as real. It would have told the “vultures” circling Centro to extract some of its better assets that the banks were going to do what they could to ensure there were no distressed sales.

The banks know that they can’t put Centro into either a formal or informal administration and force it to start liquidating its assets. A formal administration would destroy the value of their loans by wiping out the value of Centro’s service businesses and Centro shareholders would never agree to a forced sales program that left them nothing of any substance.

In any event, the Centro camp appears confident that it will be given at least until September 30 and perhaps longer to come up with a plan that is acceptable to its lenders and preserves something meaningful for its equityholders.

Time is valuable. With the cost of debt rising, property markets softening, the US economy sliding towards recession and the Australian economy likely to slow, it isn’t a good moment for a large-scale asset sale program to be driven by short-term deadlines.

Pushing the deadline back to December would improve Centro’s negotiating position with prospective buyers of its assets and/or suppliers of equity.

If prospective buyers of Centro’s most valuable assets are convinced, or at least concerned, that the banks will continue to extend rather than force the group to dump assets, the Centro team will have some leverage with which to try to negotiate deals that reflect the longer term strategic value of some of its retail centres.

It might be counter-intuitive, but the more time the banks give Centro the less time it might actually need to start reducing its mountain of debt.