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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:82279 BoomBustBlog Reggie Middleton

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10-04-2017 Hits:82173 BoomBustBlog Reggie Middleton

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03-04-2017 Hits:83100 BoomBustBlog Reggie Middleton

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28-03-2017 Hits:84563 BoomBustBlog Reggie Middleton

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27-03-2017 Hits:84255 BoomBustBlog Reggie Middleton

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But it appears as of the traders have not thought this through:

A partial answer to a question: http://www.emediaworld.com/press_release/release_detail.php?id=152954

They are heavily encumbering their properties in an effort to dig  out of this hole. A pertinent question would be the actual terms of this latest funding and how much the terms differ from the debt that it is refinancing (we all know the answer: much more expensive and more restrictive)? They still have significantly more debt to refinance this year, and the year is almost over. Where is the money coming from (exactly) and when is it the money coming? At what terms and how will those terms differ from the loans being refinanced?

It appeared to be a rough ride this year in terms of funding. What is the game plan for refinancing debt in ’09 and ’10? Do you plan on encumbering even more properties than this year? Are you now accepting recourse in the terms of your new loans? What brought about that decision? How do you think it effects the value of your organization?

 

Financing and foreclosure:

At the end of 2007, GGP needed to get refinanced $2.62 bn of its total debt in 2008. However after six months in 2008, GGP debt due for refinance stood at $2.55 bn (as of June 30, 2008). Since GGP last reported results in June 2008, GGP had repaid only $391 mn of mortgage loans as per its September 5,

2008 press release ( or just 15% of the loan). With such slow progress towards refinancing, what is GGP's plan for financing the remainder $2.16 bn of its debt due in 2008?

In addition to huge debt liabilities for 2008, the company has $3.3 bn, $4.5 bn, $8.3 bn and $46 bn debt due for repayment in 2009, 2010, 2011 and 2012, respectively. How is the company planning to refinance/repay these debt liabilities? Also looking at the current credit market conditions where financing is difficult, we would like to know if company has alternative plans to raise finance including that from sale or foreclosure of its properties.

Cut in dividend:

GGP has already announced reduction of development capex to meet its cash flows for debt payments. Does the company have any plans to cut its dividend going forward (GGP had paid dividend of $160 mn in the last quarter). Also, what has been the company's rationale for raising dividend per share to $0.50 per share in 1Q2008 at a time when financing was scare and the Company had huge debt liabilities for repayment?

 

Declining rental spreads:

 GGP's average rent for new/ renewed leases declined to $37.9 per sq feet in 2Q2008 compared to $39.0 and $40.3 per sq feet in 2Q2007 and 1Q2008, respectively. As a result, GGP's rental spread has shown persistent decline over the last few quarters. How does the Company's management expect their property operations (cash flows) to perform in the wake of higher vacancy, slowing retail sales and slowing US economy?

 

Rational for acquiring properties at low cap rates:

GGP acquired most of its properties during 2002-2005 with high leverage, and most of these properties had very low capitalization rate. With decline in commercial property prices and rising interest rates, some of these properties now have negative equity. What has been the Company's thought process for haphazard growth using leverage at the peak of property bubble.

 

 

What Has Happened - Par for the Course

GGP raised another tranche of debt through the $1.75B Secured Mortgage Facility. As of June 30th 2008 (as noted below) they had received advances of $1.13B under the facility. They now say the outstanding debt in the facility is $1.41B. This implies that they have raised an additional $280M through the facility. The initial pledge was to be collateralized by 17 properties, while subsequent draws were to add "up to an additional 7 properties". They note that 24 properties are now collateralized, implying all properties available as collateral have been used. (source)


How did they repay $391M of mortgage debt when they only raised $280M?

GGP stated this in the Q2 2008 10Q: "In July 2008, we closed on the $1.75 billion Secured Portfolio Facility and received advances of $1.13 billion under such facility" They say they now have $1.41B outstanding. I deduce that they raised $280M. They have $85M in cash as well. For them to repay $391M in mortgage debt, they would have had to draw at least another $26M from somewhere else (more likely around $50-60M). Did this come from additional debt from other properties? I do not see where else it could have come from given we have seen their net debt grow every single quarter thus far: (Note 4).

Total Consol

24,260

24,159

24,078

23,862

21,004

20,511

20,281

+ Pro Rata Uncons.

3,215

3,137

3,049

3,029

3,850

3,849

3,872

= Total Debt

27,475

27,297

27,127

26,892

24,854

24,360

24,153

- Cash

-87

-256

-100

-48

-65

-65

-97

= Net Debt

27,387

27,040

27,027

26,843

24,789

24,295

24,056

Change ($M)

347

13

184

2,054

494

240

 




The Real Problem Still Remains

This is par for the course. These is still some possibility that they aren't able to raise the last $340M, but I would not bet the ranch on it.

The real question is what they will need to do to refinance what is left. They will have $805M due in 2008 even after raising the full $1.75B Mortgage Facility, plus $3.33B due in 2009, and $4.52B due in 2010. If all their 2008 properties are leveraged, what will they be able to borrow off of? Can they really scrape off $805M in additional debt from their existing portfolio of properties?

If not, will they have to sell "crown jewel" properties to shore up cash? If they do end up selling "crown jewels", they will be able to take all proceeds in excess of mortgage debt and be able to apply it towards other debt, but will dramatically decrease their cash flow, and the quality of their cash flow. This or debt secured by dozens of properties with recourse to the parent company seem like the best possible options for the company at this point, because low quality properties will not sell.



Background - Status of the Secured Mortgage Facility as of Q2 2008

"In July 2008, we closed on the $1.75 billion Secured Portfolio Facility and received advances of $1.13 billion under such facility (Note 4). In the event we have not received aggregate advances under the Secured Portfolio Facility of at least $1.50 billion by the earlier of the date the co-arrangers determine we will not receive any additional advances or December 31, 2008, we will be required to pay to each arranger an amount equal to the excess of (i) the outstanding loan amount held by such arranger over (ii) 16.67% of the final loan amount. We are required to deposit a portion of each advance received under the Secured Portfolio Facility into a reserve account to fund such potential payments, and have currently deposited approximately $113.8 million into such account. Proceeds from the Secured Portfolio Facility have been and will be used to repay debt maturing in 2008 and for general corporate purposes."


Background - Recap of the terms of the Secured Mortgage Facility

  • Loan sizing
    • Capacity of "up to" $1.75B depending on lender interest.
    • Initial advance of $875M at LIBOR + 225bps.
    • Expect additional advance of $225M on July 18 2008, at unknown rate
    • Subsequent draws are "subject to participation by additional lenders and certain other conditions." They need to attract third party lenders to get this credit
  • Maturity
    • 3 year maturity with 2 1-year extension options.
    • Extensions require that the Loan to Value ratio not exceed 60%
  • Payments
    • Debt = interest only – only pay interest until all principal due at maturity.
  • Loan structure
    • It appears this is an open ended lending structure with which multiple lenders are able to lend with multiple properties as collateral – a more robust way for GGP to refinance its existing mortgages.
  • Collateral
    • Collateral *for initial advance* is 17 first mortgages.
    • Collateral *for 2nd $225M advance* is the 17 first mortgages, plus up to an additional 7 properties.
    • Debt has at least partial recourse – "The Company … have guaranteed a portion of the obligations of the Borrowers under the Loan Agreement."
    • Creation of a "Required Reserve Fund" for when the Debt Service Coverage Ratio gets low at any particular property. When DSCR goes below a certain level GGP is required to throw all cash flow into a Reserve Fund
  • Covenants
    • The Loan to Value Ratio of all future advances cannot be above 65%, and the Debt Service Coverage Ratio must be greater than 1.35 to 1.
  • Counterparties:
    • Administrative agent: Eurohypo AG
    • Joint Lead Arrangers and Book Managers: Wachovia, Eurohypo, ING Real Estate
    • Co-Syndication Agents: Wachovia and ING
No Citigroup