Securities in Centro Properties and its associate, Centro Retail Trust Group went for a nice run yesterday in the wake of the two groups bedding down financing a year after they confessed to being broke and unable to repay debt.
The two groups obtained a one-month interim extension for all of their debt facilities, totalling $6.01 billion that expired on Monday, to enable a final agreement to be reached.
If that is done the first bit of debt falling due will be at December 31, 2010 for the Super LLC business in the US where $US1.3 billion of facilities will be converted into term loans expiring on that date. The Super LLC is the joint venture between Centro Properties and the Retail Trust and covers shopping centres in the US.
So there’s a two year period for the Centro management to try and raise cash by selling assets.
There’s a further $4 billion of facilities to be turned into term loans expiring a year later on December 31, 2011.
And then there’s the hybrid note, with which the lenders (and with a 14.9% stake to be issued soon to payoff fees) will give the banks and other groups effective control, and allow them up to four more years to see if Centro’s value rises as the economies of the world recovery.
Centro Properties shares jumped 80% at one stage before settling back to close up 1.8c or up 20% at the close last night. Centro Retail jumped sharply and ended up more than 49% at 9.1c.
They are hardly getting out of jail figures, but make a welcome change to the unremitting gloom of the past 12 months.
The way the shares slowly eased in the afternoon after the early surges is also testimony to the realisation that when the final deals are done, the existing security holders will take a bath, especially those in Centro Properties.
Centro says it has reached an in-principle agreement with all of its 23 financiers to achieve a long-term refinancing and stabilisation plan following a series of meetings which ended Tuesday afternoon.
The interim extension gives Centro time to complete the formal documentation for the refinancing and stabilisation. Under the agreement, Centro can use a revolving working capital facility set at up to $35 million.
The extension also allows it to get through the vital Christmas-New Year trading periods in Australia and the US which will generate a rise in cash, especially here.
Centro had until 5pm New York time on Monday of this week (9 am Tuesday, Sydney time) to repay debt of $2.3 billion to its 13 Australian and US bankers and $US450 million ($684 million) owed to 10 US insurance company noteholders.
Centro’s bankers in the Australian syndicate are the Commonwealth, NAB, ANZ, BNP Paribas, Sumitomo Mitsui Banking, the German bank WestLB, JP Morgan and Royal Bank of Scotland.
The Commonwealth, which had raised the most objections to the proposed rescue package, agreed to sign the deal at the last minute.
Centro said that the $1.05 billion hybrid security will be senior secured convertible bonds (Hybrid Securities) subscribed for by the Australian lending group.
"The hybrid security will have a seven year maturity date and the potential for conversion into ordinary stapled securities. All interest payable on the Hybrid Securities is expected to be capitalised. Any conversion to ordinary stapled securities would be subject to a number of conditions, including approval of Centro ordinary securityholders."
At the moment that could convert to 80% of Centro’s issued securities.
"The A$4.0 billion of remaining existing senior secured debt owed to the Australian lending group and US private placement noteholders will be converted into term loans maturing on 15 December 2011.
"Centro stapled securities equivalent to 14.9% of existing issued securities will be issued on or before 15 January 2009 to the Australian lenders and US private placement noteholders on a pro rata basis at market value, the proceeds of which will be used for payment of outstanding lender fees and expenses;
"If converted in full, the Hybrid Securities would constitute, in aggregate with the 14.9% of stapled securities referred to above, 90.1% of the post-conversion (fully diluted) ordinary stapled securities of Centro."
That would wipe out existing security holders, leaving them with less than 10% and unable to gang together to block any deal.
Centro said "No distributions to ordinary securityholders are permitted to be paid for the duration of the senior secured debt facility, and it is unlikely that distributions would be paid prior to conversion of Hybrid Securities;
"Facilities of US$1.3 billion associated with Super LLC, Centro’s joint venture with Centro Retail Trust (CER) will be converted into term loans maturing on 31 December 2010;
"A facility of US$370 million will be provided to Super LLC by the existing US lenders. This facility will be used primarily for the repayment of indebtedness and will provide additional liquidity; and
"Centro will provide certain collateral to the Super LLC lenders to secure the release of Centro guarantees within the Super LLC structure."
Centro Chairman Paul Cooper said in the statement: “The Board has carefully considered all alternatives available to Centro over the last 12 months and has concluded that the transaction agreed in principle with our financiers provides the best outcome for our shareholders.
"The outcome provides a future for Centro and retention of some value for our existing shareholders and is superior to the prospec
