CB Richard Ellis sells $450 million in bonds
CB Richard Ellis Group Inc., the world’s largest commercial property brokerage, borrowed $450 million Thursday at a steep interest rate as part of the firm’s effort to stay solvent in the most punishing real estate market in decades.
The Los Angeles-based company raised the money by selling new bonds. It is using the proceeds, along with $150 million that it raised last week by selling new common stock, to help pay off hundreds of millions of dollars in loans coming due this year and next.
To persuade investors to buy the bonds, the Los Angeles-based company was forced to offer a yield of 11.625% a year, more than the current 10.55% average yield on an index of 100 junk-rated corporate bonds tracked by KDP Investment Advisors.
The senior subordinated notes sold Thursday don’t come due until 2017. The company hopes that by then its business will have improved.
“This leads to a higher cost of debt but allows them to feel safer in a risky environment,” said Will Marks, an analyst at JMP Securities.
Like other commercial property brokerages, CB Richard Ellis suffered a decline in revenue from brokering sales and lease transactions as the credit crunch and subsequent recession stalled the international real estate market.
Before its stock offering last week, the company had $2.4 billion in debt, including $400 million maturing this year and next. The bond and stock sales will enable the company to pay off “a significant portion of loans coming due in the next two years,” Chief Financial Officer Robert Sulentic said.
The company is in talks with lenders about deferring until 2013 the due dates on “a substantial majority” of its remaining loans, he said.
By paying down existing debt with money from the stock sale, CB Richard Ellis will automatically get lower interest rates on some of the remaining debt, significantly offsetting the high interest rate on the notes sold Thursday, Sulentic said in an interview.
CB Richard Ellis announced the completion of the bond sale after the stock market closed Thursday. Earlier in the day, its shares rose 9 cents, or 1.1%, to $8.53.
As recently as March, the stock traded as low as $2.36. But it remains down nearly 80% from a high of $41.44 reached in July 2007.
Marks, the analyst at JMP, expects the brokerage’s shares to ultimately outperform the market, however.
“CB’s investment sales brokers haven’t been busy for almost two years,” Marks said. “When banks finally do start lending again and when distressed assets actually start trading, CB should benefit.”
The firm reported a net loss of $36.7 million, or 14 cents a share, in the first quarter. Revenue sank 28% to $890 million.
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