Banks Throw Centro Late Lifeline

The Age

Wednesday December 17, 2008

By CAROLYN CUMMINS, SYDNEY

CENTRO Properties has been thrown a lifeline in a $5 billion-plus deal involving hybrid convertible notes and a debt-to-equity swap.

In a late deal struck with its bankers, the retail landlord will now proceed with its asset sales program, and finalise details that will result in its financiers owning as much as 90 per cent of the group.

Centro was given a one-month extension last night to finalise documents with its bankers, after which the complex financing package will remain in place until 2011.

Centro Properties and its associate, Centro Retail Trust, will resume trading today, after a two-day trading halt. It is expected that the shares will come back on at a higher level than the pre-halt prices of 8 each.

Of the $5.05 billion in senior secured debt owed to the Australian lending group and US private noteholders, $1.05 billion will be replaced by a hybrid security and $4 billion will be converted into term debt loans. The $1.05 billion hybrid security will be senior secured convertible bonds to which the Australian syndicate of banks will subscribe. The hybrids will have a seven-year maturity and the potential for conversion into ordinary stapled securities. This deal is subject to approval by Centro investors.

It is a year to the day that Centro first revealed it was collapsing under a mountain of debt. The founder and former chief executive, Andrew Scott, said at the time the group had been hit by the subprime debt crisis in the US.

It became apparent in January this year that Centro could not survive unless it reached a deal with its bankers. The securities were then trading at nearly $10, giving the group a market value of about $12billion - this week it is closer to $200 million.

Centro's bankers in the Australian-led syndicate are Commonwealth Bank, National Australia Bank, ANZ, German bank WestLB, BNP Paribas, Sumitomo Mitsui Banking Corp, JPMorgan and Royal Bank of Scotland.

The American syndicate includes Bank of America, Wachovia, KeyBank and JPMorgan.

After five debt extensions, organised by chief executive Glenn Rufrano, the lifeline to keep the country's second-largest retail landlord afloat has been secured.

Mr Rufrano said last night that the $4 billion of remaining existing senior secured debt owed to the Australian lending group and US noteholders would be converted into term loans maturing on December 15, 2011.

Furthermore, 14.9 per cent of Centro's existing securities will be issued on or before January 15 next year to the Australian lenders and US noteholders on a pro rata basis. Cash raised through the placement will be used to pay off outstanding lender fees and expenses.

Centro shopping centres are typically focused on non-discretionary retail spending such as fresh food, supermarkets and other everyday needs.

It is the largest provider of retail space to Wesfarmers and Woolworths in Australia and TJX and Kroger in the US.

Shopping centres include Victoria Gardens in Richmond, The Glen in Glen Waverley and the David Jones complex in Perth.

© 2008 The Age

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