This article is from the Australian Property Journal archive
CENTRO Properties Group's $4.5 billion Unites States vehicle is on the brink of collapse, Centro NP LLC has exhausted its revolving credit – unable to pay for day-to-day expenses and chief executive Glenn Rufrano has "substantial" doubt about the group's future.
In addition to the revolving facility, Centro NP has a $US14 million of mortgages payable in 2008 and in the event of a non-payment would trigger a default of the $US1.8 billion Super Bridge Loan which is collateralised against 100% of the Centro NP.
Centro NP was formerly known as New Plan Excel and is a subsidiary of Super LLC, a joint venture between Centro Properties Group, Centro Retail Trust and Centro MCS 40.
Yesterday, the company reported a net loss of $US299 million for the three months to June 30.
During the period, the owner of 650 malls generated net income of $US4 million.
Rufrano yesterday admitted that Centro NP’s can no longer draw on its Amended July 2007 Revolving Facility which has approximately $US18.9 million to meet day-to-day expenses. The company currently has $US306.8 million of debt under that facility scheduled to mature in September 30 and $US8.6 million of mortgage debt as well as $US14.0 million of mortgages payable scheduled to mature during 2008, which in an event of a non payment may trigger a default of the Super Bridge Loan. The company also has another $US177.1 million outstanding under floating rate secured term loans.
“Although we have historically met our short term liquidity requirements with cash generated from operations and borrowings under credit facilities, we are presently unable to make draws on our Amended July 2007 Revolving Facility,”
Rufrano expressed his frustration saying covenants under the debt extension agreements are restricting the company’s ability to incur additional debt in the short-term.
“Due to covenants contained in certain of our debt agreements, we are prohibited from incurring additional indebtedness and are limited to distributions received from the Residual Joint Venture that are funded with borrowings from an $US80 million revolving credit facility of BPR Shopping Center, LLC, an unconsolidated subsidiary of ours, for additional borrowings to meet our short-term liquidity requirements,” he added.
Rufrano said the company is currently working with the lenders to refinance the Amended July 2007 Revolving Facility.
He warned that there can be no assurances that Centro NP will be able to refinance its short-term debt on “favorable terms or at all”.
“In addition, there are certain factors that may have a material adverse effect on our cash flow from operations which would further constrain our ability to satisfy our short-term liquidity requirements.
“…our operating cash flow is dependent on the rents that we are able to charge to our tenants, and the ability of these tenants to make their rental payments… however, general economic downturns, or economic downturns in one or more markets in which we own properties, still may adversely impact the ability of our tenants to make rental payments and our ability to re-lease space on favourable terms as leases expire. In either of these instances, our cash flow would be adversely affected,” he added.
As of June 30, 2008, Centro NP had approximately $US830.2 million of indebtedness outstanding, excluding the impact of unamortized premiums, under three indentures, having a weighted average interest rate of 5.84%. So far, the company has not breach any covenants that would cause it to be in default.
But Rufrano said “if our properties do not perform as expected, or if unexpected events occur that require us to borrow additional funds, compliance with these covenants may become difficult and may restrict our ability to pursue certain business initiatives,”
In addition to the Amended July 2007 Revolving Facility and the Indentures, as of June 30, Centro NP had $US427.4 million of mortgage debt outstanding, excluding the impact of unamortized premiums, having a weighted average interest rate of 9.08% per annum.
Rufrano said one resolution to the liquidity issues may be, in part, achieved through asset sales.
“If we are required to dispose of real estate assets quickly and in a manner other than normal fashion to assist with our liquidity position, it is possible that these real estate assets would be sold at a loss. Additionally, our ability to sell real estate assets is restricted by a loan-to-asset covenant ratio as contained in the Indentures,” he added.
During the six months ended June 30 the company sold six shopping centres and two land parcels for aggregate gross proceeds of approximately $US24.8 million. And as of June 30, 15 shopping centres were classified as “real estate held for sale.” The properties had an aggregate book value of $US46.6 million.
Meanwhile, Rufrano said a cash injection from Centro Retail Trust and Centro Properties Group is highly unlikely.
“Due to financing constraints of our Australian parents, it is unlikely that they will be able to make additional equity contributions to alleviate any short-term liquidity issues we may encounter,”
Rufrano also said the chances of a default are heightened as a result of the cross non payment provisions in the borrowing arrangements which increase the consequences of a default.
“The Amended July 2007 Revolving Facility is cross-defaulted with the Super Bridge Loan, the Australian Amended and Restated Extension Deed and the Preston Ridge Facility. Accordingly, should an event of default occur under any of these debt agreements, we face the prospect of being in default under each of such debt instruments to which we are an obligor.
“In the event of a cross-default, we might not be able to obtain alternative financing for the defaulted obligations or, if we are able to obtain such financing, we might not be able to obtain it on terms acceptable to us,”
“Our management team continues to work closely with the counterparts of our ultimate parent investors, our lenders and lenders of Super LLC, Centro and Centro Property Trust.
“Our ability to continue as a going concern…. there is substantial doubt about our ability to continue as a going concern,” he concluded.
Australian Property Journal
