(Bloomberg) -- Adler Group SA shares jumped as much as 64% after the landlord agreed an expensive deal with creditors to extend debt maturities and postpone publication of audited accounts.
Despite Monday’s record gain, the company’s shares have still lost almost three quarters of their value this year after a damning short report published by Viceroy Research in October 2021 accused the company of being run for the benefit of tycoon Cevdet Caner.
The embattled firm reached a pact with holders of about 45% of its bonds to raise as much as 937.5 million euros ($974 million) in the form of a secured loan that will be used to pay back maturing bonds, according to a statement Friday. They will also be able to take 25% of the company’s equity.
“The proposed restructuring buys one thing - time,” said Mark Benbow, a portfolio manager at Aegon Asset Management, who owns Alder bonds. If the deal is signed off it “allows them to deal with the short term maturities and removes the risk of a fire sale on the assets.”
The landlord has been rushing to sell assets in the face of capital markets that are effectively closed to the company as it seeks to pay down €6.3 billion of debt. The saga has played out against the backdrop of a German real estate market that’s been hit by rising interest rates, causing a sharp slow-down in deal making.
Read: Adler Agrees on ‘Expensive, Complex’ Debt Deal With Bondholders
The proposed loan will incur an interest rate of 12.5% with a maturity in June 2025, a 2.75 percentage point increase on the interest rate on the bonds. It needs 75% approval to proceed.
“The deal isn’t easy, it’s expensive, it’s complex, it still has to be executed,” Chairman Stefan Kirsten said in a conference call with reporters on Friday. “It cuts into the meat of our equity holders. That’s totally clear. But this way, we’re preserving the company for all stakeholders.”
The deal will become effective in the first quarter of next year if it wins approval, according to the statement. Adler will seek alternative processes in Germany or abroad if it fails to get backing from investors.
A group of creditors to the firm including Pacific Investment Management Co. hired Houlihan Lokey Inc. to help with a potential restructuring, Bloomberg News reported in August.
Adler has been selling assets to pay down debt since Viceroy’s accusations, together with a memo to the company’s lenders compiled by a former associate of Caner, triggered a collapse in the company’s stock and bond prices.
The landlord and Caner denied the charges and a forensic audit conducted by KPMG cleared the company of systemic fraud but failed to disprove all of the allegations. KPMG subsequently quit as auditor, triggering a further sell-off.
Adler Group’s €800 million bond due January 2029 rose 10 cents on the euro to 49.3, and is poised for its biggest rise since the bonds were issued in 2021, according to Bloomberg-compiled prices. The shares were up 51% at 10:26 a.m. in German trading.
The provision of the debt financing is subject to a positive opinion from an advisory firm on the restructuring, Kirsten said on the call with reporters. The real estate firm is working with advisers on an assessment of its balance sheet, a so-called IDW S6, a necessary step to be able to raise fresh funds in a financial restructuring.
The deal is also also requires an amendment of the bond terms, the provision of the agreed collateral and further customary conditions, Kirsten said.
(Updates with share price and deal information throughout.)
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