REIT Submits Reorganization of Debts Plan
Mortgage & Realty Trust, a major real estate investment trust that sought bankruptcy court protection despite being profitable, said Monday that it submitted a reorganization plan that calls for full repayment of its debts.
The plan also calls for Mortgage & Realty, an Elkins Park, Pa.-based concern that has executive offices in Burbank, to resume dividend payments so it can keep its status as an REIT. Such trusts escape corporate income taxes if nearly all of their profit is distributed to stockholders.
Mortgage & Realty suspended its dividends when it filed under Chapter 11 of the U.S. Bankruptcy Code on April 12. Under Chapter 11, a company is shielded from creditors’ lawsuits while it works out a plan to pay its bills. Creditors’ claims--all unsecured--totaled $397 million as of June 30. Mortgage & Realty’s assets totaled $595 million.
The company, which invests in real estate and mortgages mainly with cash it obtains from lenders and investors, also stopped making new investments after the bankruptcy filing, but is funding loan commitments it made before then.
However, the company signaled that its creditors apparently have qualms about its reorganization plan, which calls for the creditors to be repaid--with interest--within three to six years. The company did not say what those qualms were about but said it filed the plan after negotiations with creditors reached an impasse.
A hearing is set for Oct. 2 for creditors to comment on the plan. The company sought bankruptcy protection after missing $105 million in debt payments in March. The company blamed the default on Standard & Poor’s Corp., a debt-rating agency, for downgrading its rating of Mortgage & Realty’s commercial paper, a type of short-term unsecured debt that the firm routinely sold to investors to raise cash.
Mortgage & Realty said S&P;’s action effectively shut it out of the commercial-paper market. The company then tried to get a new credit line totaling $425 million but decided it could not live with the lenders’ terms. So it went to bankruptcy court instead.
In the nine months ended June 30, Mortgage & Realty earned $1.4 million on revenue of $43.2 million. However, it had an $8.3-million loss in its fiscal third quarter after establishing a provision for growing losses in its real-estate portfolio.
