Some good news from basket case corner: specifically for the suffering holders of securities in Centro Properties and Allco Finance Group.
Centro Properties Group, whose implosion last December triggered the 2008 slump in the Australian stockmarket when it failed to rollover huge debts on December 17, revealed yesterday that it is selling some of the shopping malls in its Centro America Fund for $US714 million and using the cash to pay down debt.
29 of the fund’s 31 malls will be sold at a 10% discount to the properties’ 2007 book value, to an unnamed private real estate group: a lack of disclosure that isn’t promising.
Centro said: "The 29 properties aggregate 5.1 million square feet and span 15 states. The agreement excludes CAF’s partial share of Independence Mall, located in Wilmington, North Carolina, and Elk Park Center, located in Elk River, Minnesota, which will continue to be held by the fund."
The securities were chased hard after the news: they hit a day’s high of 31.5c, up some 35%, before easing to end up 1.5c, or 6.5% at 26c. The shares are still down more than 80% from last December.
The sale was good news, but seeing the group owned around 700 US shopping malls when it failed in December, there’s a lot of work still to be done.
Centro says it will get revenue from providing management and leasing services for the 29 malls for at least a year from the settlement date in late September or early October, maintaining a valuable source of fees.
Centro has received several extensions on about $2.8 billion in debt which now becomes due in December.
"The sale of the CAF portfolio is a key step in providing liquidity to our balance sheet," chief executive Glenn Rufrano said in a statement to the ASX.
Centro told Reuters that talks were continuing with potential buyers of another Centro wholesale fund, the Centro Australia Wholesale Fund, containing some $2.6 billion in local shopping centre assets.
That will be a much bigger ask with the virtual freezing of the local commercial property market thanks to a combination of the credit crunch, falling retail sales and economic activity and a dearth of buyers.
All major players in commercial and residential property in Australia are nursing some sort of damage from the crunch: the market prices of listed securities are low, asset values are falling, even for CBD offices and those funds with exposure in the US and Europe or Britain, are being doubly hurt.
We will give an idea of its chances of selling some of its Australian assets and paying down debt within the next month.
Centro says it is selling its interest in the huge Bankstown shopping centre in south western Sydney and expects to be in a position by early next month to reveal levels of interest. The company said last week that if sold it would be settled in late October and would substantially reduce gearing in some trusts and funds invested in the centre.
Infrastructure and geared funds have been hit badly as well and buyers have retreated to the sidelines, even big cashed up funds.
Centro holds 45.1% of the Centro America Fund and its managed funds own another 49.9% stake. That is making for a very messy situation and some upset investors in those funds.
Centro and its affiliates have a total of some $5.3 billion in debt which now falls due December 15.
And shares in stricken financial engineer, Allco Finance Group also had a small run yesterday on news of a refinancing of some of its debts.
AFG shares closed up 4c at 43.5c after trading up 35% 47.5c.
Allco Finance said it had refinanced its senior debt facilities with the company’s standing banking syndicate with the 12-bank syndicate agreeing to refinance all of Allco’s senior debt, which is expected to be run down from $691 million to $400 million by June next year.
AFG said the new facility will run until September 30, 2009, and does not include any market capitalisation review clauses over Allco.
But the debt refinancing comes with a cost that reflects the new rules for risk and lending and the impact of the credit crunch. Allco will pay a 2.75% margin over the relevant borrowing reference rate on senior debt totalling up to $400 million; and it will also pay a 3% margin on senior debt totalling between $400 million and $600 million, and a 3.5% margin on senior debt totalling more than $600 million.
That could see rates top 10%-12%, depending on how local and international rates go in the next few months as the credit crunch continues to tighten its grip.
"Despite the very difficult conditions being experienced in world financial markets, including higher debt margins reflecting the tougher credit climate, we are achieving key milestones in lower gearing levels," Allco chief executive David Clarke said in a statement announcing the new agreement.
"We are well on the way to achieving the agreed repayment schedule expected to result in our senior debt reducing to $400 million by June 2009 through sales of non-core assets.
"We have a long-term sustainable and leaner business model, and a simplified corporate structure."
Allco raised $335 million a month ago by selling a US wind farm.
