Avison Young nears restructuring after ratings agency scare

Avison Young is nearing a deal to restructure its debt after ratings agency S&P sent out a notice the firm defaulted.

S&P sent an alert on Friday that the firm failed to make its principal and interest payments for the third and fourth quarter. The agency also lowered its assessment of management and governance to negative.  

But Avison Young’s CEO Mark Rose said the firm did not default. 

It negotiated months ago on a plan to restructure its debt with lenders and stakeholders to stop making interest payments for a few months. And Avison Young has made its required loan payments, according to the firm. 

“This was a business discussion where 100 percent of all stakeholders said they love the company, love the strategy, let’s put the company in a position to put the real estate industry cycle behind it and ahead of everyone else,” said Rose. 

Rose said the firm’s debt will be cut in half and its loans will be extended another five years from when the debt is set to mature. In order to retire some of its debt, the firm’s lenders took concessions.

Bisnow first reported the news. 

A default would have marked a new low for the commercial brokerage world. The business is among the hardest hit by the pandemic and higher interest rates. With U.S. transactions down about 50 percent in 2023 from a year prior, revenue has tanked. Some brokerages, like Newmark, have opted to aggressively hire star brokers, while Cushman & Wakefield has zeroed in on slashing its debt by selling parts of its businesses. 

Toronto-based Avison Young is among the largest commercial brokerages operating in the U.S. and Canada. The firm, unlike most of its competitors, is privately held, allowing it to restructure behind closed doors. It is also majority owned by its principal brokers. 

Avison Young scored a $250M equity investment in 2018 from Canadian pension fund Caisse de dépôt et placement du Québec. The firm inked a $325M senior loan in 2019 and a $50M senior loan in 2022, which were set to mature in 2026. Ratings agencies grew wary of its liquidity and upcoming debt payments during a difficult period for the industry. 

In September, S&P downgraded Avison Young to junk status, noting the firm had a cash outflow of $17.25 million months prior.

“We don’t think that Avison Young will be able to address the accelerated debt maturity based on its existing liquidity sources.” The ratings agency also acknowledged the firm was in talks with lenders.  

A restructuring provides Avison Young with more liquidity, according to Rose. Its existing backers chipped in a “de minimis amount.” The firm is also converting some of its preferred debt to equity.

“There’s more cash, there’s no concern about interest rates and cash interest,” said Rose. “We just get to look forward.”

As part of the recapitalization, Avison Young reduced its board seats from 11 to 5. Caisse de dépôt et placement du Québec, which held two board seats, has reduced its investment stake in the firm. The goal is to make the board look more like a public company.

Rose said leadership will remain the same and there will be no cuts. Brokerage commissions will not change.

Despite pessimism in the office sector, Rose said Avison Young is in growth mode. Earlier this year, the firm acquired the retail management and leasing business from Madison Marquette.

“Everyone is waiting for the real estate sky to fall. The sky fell already,” said Rose. “Now everything is an incremental step up from here.”

But despite its positive outlook, the firm is not planning to spend top dollar to poach capital markets brokers like its competitor Newmark. 

“We’ve passed on a good chunk of the people who spoke to us as well,” said Rose. “That’s not our strategy.”

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