Koll Bondholders Offer to Swap Debt for Company Stock

Bondholders of Koll Real Estate Group, the Newport Beach developer, offered Thursday to swap $183 million of debt they hold in the company for stock.

Under the complex debt-for-equity-swap, the bondholders would control the publicly traded KREG by owning a majority of the company’s stock and would then lead KREG’s controversial plans to develop hundreds of homes in the wetlands area at Bolsa Chica near Huntington Beach.

“KREG is too leveraged. The bonds are trading at 55 cents on the dollar and the stock is trading for pennies,” said Wilbur L. Ross Jr., a senior managing director at Rothschild Inc. in New York, which is representing bondholders. “Clearly . . . there’s too much debt here,” he said.

KREG’s chief financial officer, Raymond Pacini, acknowledged the company had received the bondholders’ proposal. KREG management is “evaluating the bondholders’ committee proposal and will respond,” he said.

KREG’s bonds are a special type of debt that pays bondholders interest with more debt instead of cash. So, every six months Koll issues nearly $11 million more debt to bondholders until the debt matures March 15, 2002, Ross said.

Thus, if the debt is not restructured, KREG will add more than $100 million of debt in the next five years, Ross said.

Major bondholders include Bank of America, Loews Corp. and Merrill Lynch Asset Management.

The company’s major shareholders include Merrill Lynch and several insurance companies.

Ross said that after the restructuring, KREG would borrow $25 million to develop Bolsa Chica.