Koll Real Estate Seeks Deal, May File Chapter 11
Executives at Koll Real Estate Group Inc. say they may be forced to put the company in bankruptcy if they can’t persuade enough bondholders to trade in $200 million in debt securities for common stock by today.
Executives have resisted filing bankruptcy, fearing it would taint the company’s name in the development business and affect its ability to raise money. But some bondholders believe a voluntary reorganization under Chapter 11 of the federal bankruptcy laws would provide tax advantages.
In addition, KREG has until today to resolve its debt woes or be removed from the list of stocks on the Nasdaq national market system. Its stock inched up less than 2 cents a share to close Monday at 12.5 cents a share.
KREG has made little headway so far in its efforts to persuade holders of a required 90% of debt securities to tender their shares, even though the company has twice pushed back the deadline, executives said. Holders had tendered 74% of the total debt by Monday.
“We’ve extended [the deadline], but we aren’t significantly closer,” said Raymond J. Pacini, KREG’s chief financial officer.
In a document filed in May with the Securities and Exchange Commission, the company said it planned to file a “prepackaged” Chapter 11 bankruptcy if it could not convert enough debt to equity. In such a filing, management would remain in control and continue operations while reorganizing its debts.
However, executives said Monday that they still could decide to extend the deadline for the exchange offer.
Both the bankruptcy reorganization and the tender offer are similar, swapping company stock for debt and putting outside directors on Koll’s board. Under either plan, bondholders would become majority owners.
However, the bankruptcy plan has big tax advantages that many bondholders prefer, including the option to write down up to $200 million of its net operating losses, according to Wilbur Ross, senior managing director of Rothschild Inc. in New York.
“As long as you’re going to restructure it, they prefer it be done in the most tax efficient way,” said Ross, whose investment banking firm represents the bondholders’ group.
A prepackaged bankruptcy would proceed relatively quickly, he said, and the required majority of security holders already have approved the concept.
Meantime, the company said Monday that plans for developing its major asset, land overlooking the Bolsa Chica wetlands, has been pushed back about six months by a court ruling last week. A judge sent the development plan for the controversial project back to the California Coastal Commission for review.
The Bolsa Chica project has put a tremendous financial strain on KREG. Environmentalist opposition stalled the project for several years and a staggering amount of long-term debt threatened to prevent the developer from completing the 2,400-home project.
KREG is a residential and commercial developer not related to the other three companies that carry the Koll name: Koll, Koll Construction and Koll Resorts International.
