Noose tightens for beleaguered IVG creditors
Germany’s listed IVG Immobilien AG, struggling desperately to avoid total implosion under its crushing debt burden, has been communicating frantically with all its creditors in a bid to find a solution that might salvage some value in advance of the company’s agm, now postponed yet again until 30th August.
The situation is now so serious that IVG took the step of appointing a new emergency board member exclusively tasked with the financial restructuring. Hans-Joachim Ziems is a restructuring specialist most recently working at industrial group Pfleiderer, and has been given a one-year contract, with immediate effect.
The company has instigated a full review of its options by calling on all its lenders to come together on a series of committees and explore options for refinancing about €3.3bn in debt. The immediate goal is to reduce liabilities by €1.35bn and by a further €400m on its hybrid bond. Lenders are being asked to reach a solution by 20th July, in order to be presented to and voted on by shareholders at the August 30th agm.
In a statement, IVG asked all its holders in each creditor class “to organise and put forward as soon as possible proposals regarding committee composition and advisory requirements. The company would like to see each committee being a manageable size, with significant holdings of the respective debt and with the composition widely supported by the respective creditor class. IVG kindly requests holders who have not disclosed their holding yet to provide the company or its financial advisor Rothschild with their holdings.”
Creditors belong, as a rule, to one of four main groups of loan providers or bond holders making up the €3.3bn in debt. These are: a bilateral loan and syndicated facility both raised separately in late 2007 and amounting to €100m and €1.35bn respectively - both of which matured in May 2012, and a €1.05bn facility raised in May 2009 and overdue since February last year. Two credit facilities that still have time to run are a €400m convertible bond issued by IVG Finance B.V. at 1.75% coupon and due 2017, and a €400m hybrid bond which is a perpetual bond.
The largest remaining shareholder in IVG is the Karlsruhe- and Texas-based Mann family, headed by Johannes Mann, known primarily in Germany for the furniture store chain that bears their name. The Mann group appears to have held on to its 20% stake through IVG’s descent into penny-stock territory.
Former corporate raider Clemens Vedder, who in his time led a takeover attempt on Commerzbank, sold most of his nearly 5% stake for about €0.60, implying heavy losses. His long-time business associate Klaus-Peter Schneidewind also took scraps for most of his 3% shareholding as he too bailed out. Pharmaceutical entrepreneurs and identical twins Andreas and Thomas Strüngmann through their Santo Holding investment vehicle have also sold a large chunk of their 15% shareholding.
REFIRE: There’s no doubt this will be a slaughterhouse scenario for many IVG creditors. Even the company’s first quarter figures were sobering – a loss of €45.1m, ten times worse than the corresponding figure last year. This was largely due to a hefty write-down on an office property in Frankfurt leased to insurer Allianz. Although Allianz renewed their lease, they did so at a much lower rent, leading to a valuation write-down on the property of €21.3m. The normally profitable caverns business also lost €7m in valuation, and the operating cashflow in the period deteriorated further to minus €20.1m.
US investment bank JP Morgan has already announced in an analyst note that the equity left in IVG is worthless and has cut its share valuation to a symbolic one cent. The note said “Our European Valuation Model implies zero value for IVG ordinary equity as a going concern, while a DCF (discounted cash-flow) driven revaluation implies zero equity on the existing balance sheet.”
The JP Morgan analysts plant the blame squarely on the poor quality of IVG’s assets. With 78% of IVG’s 134 properties valued at below €25m, managing the assets is more expensive than their liquidation value, they say. The IVG assets simply produce too little cash to offer shareholders any meaningful yield, and lowering borrowings on the assets would make no effective difference, they conclude.