IStar faces potential collapse: Fitch

By David Jones | September 29, 2010 02:15PM

Left: One Mad. Park, Trump Soho, William Beaver House, Dan Fasulo of Real Capital Analytics

Fitch Ratings downgraded and issued a dire warning about iStar Financial, saying the Manhattan-based commercial lender would need to negotiate significant concessions from bondholders to avoid a bankruptcy filing.

Fitch said iStar is facing significant debt maturities in second-quarter 2011, including $1.7 billion in second lien term loans and revolving credit and another $500 million in an unsecured revolving credit line.

The lender is one of the most closely watched in the New York market, as it has some of the city’s most high-profile condominium projects, including One Madison Park, William Beaver House and Trump Soho.

Fitch noted that non-performing and watch-list loans represent 54 percent of iStar’s total loan portfolio, and iStar has already filed to foreclose against One Madison Park and William Beaver House.

“All we can say in our view in order to avert a bankruptcy the company will need to negotiate with certain of its debt holders to restructure some of its upcoming indebtedness,” Steven Marks, a managing director with Fitch, told The Real Deal. “Any type of restructuring it would propose would be a coercive [commercial debt exchange] where the bondholders would get some sort of reduction in terms.”
He said the reduction would range from accepting less principal or negotiating an extension of the loan maturity dates.
The warning comes just days after published reports linked iStar to a possible pre-packaged bankruptcy filing.

Andrew Backman, senior vice president at iStar, told The Real Deal that the lender is operating normally and continues to assess its various options. He noted that Fitch claimed it would consider a coercive debt exchange as a default, but the lender does not consider such a move a default.

“A Fitch default is not a default under any of our loan agreements,” Backman said. “iStar continues to operate its business as usual. We have ample near-term liquidity and we continue to assess all of our various options to re-align our asset and liability maturities.”

Dan Fasulo, managing director of research at Real Capital Analytics, said a potential iStar collapse could have a similar impact as the Lehman Brothers bankruptcy had on local developers that were financed by that investment bank. He noted that construction funds are drawn from lenders in phases over a period of time, and that a default would potentially stop any current project in its tracks.

“IStar has the ability to impact any developer that has a construction loan with them,” Fasulo said. “I’d be scared if I was a developer with a current construction loan with iStar.”