Please discard if it has been posted as I do not read every single post.
SOMETIME around the third week of October, Centro Properties boss Glenn Rufrano will gather more than 24 Australian and international financiers in a room in New York and offer them a brutal choice. Either they back a plan to recapitalise and refinance Centro Properties Group or they can have the keys to the debt-saddled, trans-Pacific property business. At 9am on Saturday morning, those same banks delivered another 76 days' breathing space to Rufrano and his battling Centro team. The banks signed their latest set of indulgences four days early. The way Rufrano tells it, that was because some of the Australians were very, very keen to get to the grand final. Somewhat puzzled by their fervour, Rufrano -- a native of Brooklyn -- decided to pop down to Melbourne's Federation Square to catch the telecast with a fanatical crowd. With the game's surprise conclusion, Rufrano was left hoping Centro could be "the Hawthorn of the real estate league". If anything though, Centro's task is tougher than that of the AFL's victorious underdog. Since Rufrano answered a Triple O call from the Centro board in February, his gruesomely complicated rescue mission has been occasionally mis-characterised as a game of bluff (yes, I accept some responsibility there). But in reality, there is little artifice here. Rufrano has spent the past nine months effectively dancing exclusively to the tune of Centro's broad church of creditors. By maintaining rolling three and six-month extensions of facilities, the banks have kept an understandably tight rein on a business, which when its debts are consolidated, owes something like $15 billion. But Centro's boss intends to call "time on" on that game of soldiers. So what is Rufrano asking for? First, he wants two banking syndicates, one US-based, the other Australian, to swap a serious chunk of what was always meant to be bridging finance into some sort of hybrid, coupon-lite, convertible security. Centro owes $3 billion to an eight-strong Australian banking syndicate, $US1.3 billion to a five-strong team of US banks and then $US450 million to 12 US insurance companies. It has been speculated that Rufrano is looking to swap up to $2 billion of debt into the proposed hybrid notes, with maybe a half-and-half split between here and the US. The first thing the hybrid would do is reduce Centro's gearing levels. The second is that because interest payments would be substantially reduced, the deal would fundamentally improve the company's liquidity, removing its reliance on the bank's drip-feed for its cash flow. The next step in Rufrano's plan is to convince all the banks and noteholders to extend the current terms of Centro's funding, ideally by between two and three years. Essentially, Rufrano wants to open a window of credit security for a Centro management.
If Centro's banks and noteholders cannot finally endorse a plan by December 15, which is the deadline for extensions on a troika of facilities worth nearly $6 billion, then Centro will be Norwegian Blue. An ex-parrot. Deceased.
But the fact that we are still talking about Centro suggests that its creditors are of a mind to let this deal play out. Rufrano has been talking to the banks and insurance companies about a long-term plan since the first week of July. And, so far, at least, they have been open to the possibility.
The recent dreadful tidings from Wall Street have both raised hopes of a successful conclusion to negotiations, but also delivered complications.
The most immediate of them is that Wachovia, the fourth biggest US bank, is one of Centro five US bankers. And, right now, it is seeking a better capitalised brother to bail it out of its sub-prime funk.
The question then is whether Wachovia is going to be in any sort of position to make a decision one way or the other on Centro by December.
The really important thing to stress here, particularly to Centro shareholders, is that Rufrano is not promising anyone that he has anything like a silver bullet. He is merely asking his bankers and noteholders to deliver Centro with the time necessary to attempt a sustainable reconstruction of Centro.
And, in the end, that might well mean an extended, internally managed work-out of the business.
For Centro's owners, the unavoidable conclusion here is that there is not a whole lot of value left for them in the company. This deal is about the banks, the note-holders and the people who work for the company. Centro has quality assets but it has paid too much for them and the result is that Centro's equity has been dusted. End of story.
Nothing can change the fact that the sub-prime generated Ice Age in global capital markets has rendered Centro's labyrinthine and in-bred structures utterly unworkable.
Few businesses relied as heavily on passing the debt parcel as did Centro. And, unfortunately for its shareholders, the day the credit market music died, the company has its hand on a $6 billion parcel of debt.
Most of that, some $5.2 billion or so, was accumulated in the "successful" $6.2 billion pursuit of US expansion through the acquisition of New Plan Excel Realty Trust in February 2007.
Hindsight says New Plan was a business-breaking mistake for three reasons.
First, the price was probably too high. Second, the structure of the deal was wrong both because the equity component, at only $1 billion, was too shallow and because that contribution was divided between the Centro headstock and its management satellite, Centro Retail. And, finally and most critically, the timing of the deal was just horrible. Because, before Centro could restructure the deal by shuffling assets through its satellite funds, global markets froze.
By February, founding chief executive Andrew Scott was gone and Rufrano, the man who sold New Plan to Centro, was winging his way to Melbourne.
Rufrano's decision to accept what many still, quite fairly, regard as a mission impossible, is interesting of itself. Rufrano is a serious face on the US property scene and, for all he has a reputation as a Mr Fixit, you would have thought he really didn't need to accept this challenge. And, anyway, he is said to have made a fair old payout after the Centro deal. So it isn't like he needed a job.
But he took it on anyway. Why? Apparently because he felt he owed the New Plan people something more than the disaster the Centro deal has delivered them into.
Rufrano's commitment to Centro might well become an issue in the coming negotiations. His contract is up in February and his family is very keen for him to move back to New York. Rufrano is keen to see the job through but that will require that his board accept the idea that their CEO is in New York. In normal circumstances, that would seem to be an unacceptable proposition.
But these are very unusual times and Centro faces very particular challenges. It is clear, most importantly, that Centro's US bankers and noteholders, most particularly, are in this deal because Rufrano delivered them there. The relationships are personal and it would be no surprise if the creditors were to insist that their man stays with the company until it has been stabilised. Which means some time well beyond February.
Looking good
SO how good is Westpac's offer for St George looking right now? Well, at least for St George shareholders, it is looking absolutely wonderful, according to the independent expert called in to appraise the $18 billion merger.
Forget all that white noise and bluster that drifted out from St George about fair value, because the Grant Samuel report contained in the merger scheme booklet released yesterday reckons St George would be trading at something south of $25 but for Westpac's offer.
Now, based on last night's closing prices, Westpac's 1.31-for-1 offer values St George at $30.32 a share.
Which make one wonder why on earth Westpac's board caved-in three weeks ago to the implied pressure created by St George's bleating and delivered its owners with the potential of a 28c a share to special dividend.
CNP Price at posting:
8.9¢ Sentiment: Hold Disclosure: Not Held
