one bank still holding out on centro ...

Source: The Australian Financial Review newspaper [Page 15]
Date: December 6-7, 2008

One bank still holding out on Centro

Report Nick Lenaghan
_____________________________________________________________

KEY POINTS

Without a deal, Centro will be forced into administration.

Centro is proposing a debt-for-equity swap.

CBA is sadid to be the hold-out.
_____________________________________________________________

Shopping mall giant Centro Properties Group is just one bank away from a deal to restructure almost $6 billion of debt that falls due on December 15.

Failing an agreement among its Australian lenders, along with assent from separate groups of US lenders and note holders, Centro will be forced into administration, with the prospect of hundreds of its shopping centres being put on the market in Australia and the US.

An agreement appeared more likely during the week after Babcock & Brown's 25-strong banking syndicate agreed to throw the ailing investment bank a $150 million lifeline and consider a debt-for-equity swap early in 2009.

Which bank is holding out on Centro? All fingers are pointing at Commonwealth Bank of Australia, which has shown itself to be the most risk-averse lender in the spate of high-profile collapses that now litter the corporate landscape.

Centro has proposed a debt-for-equity swap among the Australian syndicate, including Commonwealth, National Australia Bank and Australia and New Zealand Banking Group, which together are owed about $3 billion.

Note holders, a group of 12 US insurance companies owed $US450 million ($697 million), must agree to the arrangement because their debt is also held against the Centro headstock.

A parallel deal is also being worked out with five US banks owed about $US1.3 billion, which would involve renewing the debt on new terms but without an equity swap.

The whole complex machinery of the hybrid proposal was pitched to 25 lenders in New York by Centro boss Glenn Rufrano more than a month ago.

Commonwealth was conspicuous by its absence at the New York meeting [sic], a sign to some that the Australian bank with the biggest secured exposure to Centro, at a little more than $1 billion, was the most reluctant to join the party.

Commonwealth has hotly denied this interpretation, pointing out it was just as easy to absorb the message back home in Australia.

AS a meeting last Tuesday in Melbourne, believed to be at Centro's global headquarters in suburban Glen Waverley, the Australian lenders and the US note holders responded to the hybrid proposal. The majority of them were agreed on a restructure package, although some of the mechanics of the deal still need work.

Of more significance is the fact Commonwealth's support is still proving difficult.

That in itself could be enough to scuttle the reprieve the other banks appear will to offer Centro.

Another factor potentially causing dissension among the ranks of the Australian syndicate is their varying amounts of unsecured debt that is exposed to foreign-exchange movements.

While the Australian group has Australian loans secured against Australian shopping centres, they have also loaned Centro US dollars, some which helped in its $US5 billion acquisition of New Plan Excel Realty Trust last year.

Among the Australian lenders, Commonwealth has maintained the smallest unsecured exposure, about $150 million, after closing out hedging contracts earlier this year. It is not clear whether Commonwealth informed other members in the Australian syndicate before closing the contracts when the Australian dollar was still high.

Whatever the case, the hedge bok now looks very lopsided.

ANZ has almost $700 million secured, but is unsecured exposure is believed to have ballooned from about $680 million to more than $1 billion.

NAB has $750 million in secured lending while the $200 million in unsecured lending has also surged.

Westpac has a smaller secured loan of $70 million, while St George's $427 million in lending is also fully secured against Australian assets.

Despite suffering from the falling Australian dollar, most of the Australian lenders see more benefit in keeping the struggling property giant afloat than in letting it sink.

After putting more than $1 billion of its Australian and New Zealand assets on the market in recent months, Centro has realised a mere $157 million in closed sales. Those are the numbers that have given the banks serious food for thought.


Ends.

Cheers, Pie :)