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Related’s Israeli bonds worry auditors as crisis worsens
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Related tries to calm Israeli investors after market panic
Company acknowledges “unfortunate timing” as bonds mature during pandemic
After an auditor’s worried note set off an “earthquake” for Related’s Israeli bonds this week, representatives for the bond-issuing entity told investors that everything is under control.
On a conference call with investors at 5 p.m. Tel Aviv time, Related Commercial Portfolio executives pointed to the corporation’s strong finances as a safeguard against potential risk, as the company seeks to refinance maturing bonds amid economic upheaval.
“As everyone is aware, we are in the midst of an unprecedented global health crisis, the timing of which is unfortunate with respect to our bonds,” said Related general counsel Richard O’Toole, who serves as the CEO of RCP, in his opening remarks. “Despite this, today we will highlight the strength of our portfolio and our plans to ensure the bonds are repaid.”
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The bond issuer faces a $207 million payment on Sep. 30 when its Series A bonds mature. But “RCP’s capital is significantly higher than the working capital deficit, which gives us great financial incentive to ensure the bonds are repaid,” said Related and RCP CFO David Zussman.
He noted that the portfolio included 10 high-quality assets worth $2.8 billion, which were 99 percent leased at the end of 2019.
The options RCP is considering include refinancing, selling or taking on mezzanine debt for individual assets, or issuing a new bond series in Tel Aviv. Although one investor on the call noted that a new Israeli bond issuance is “out of the question as for now,” Zussman said that the firm is in a position to issue new bonds within 30 days after market volatility subsides.
While declining to provide specifics, Zussman said that the company is “pursuing these options, and others, simultaneously, both individually and in combination with each other.”
O’Toole acknowledged that they had also considered the possibility of having the parent company invest more equity in RCP, though they believe this will not be necessary.
“Given RCP’s experience and track record in the financial markets, RCP is confident that it will be able to execute and generate sufficient liquidity,” Zussman said.
Potential asset sales could total $1.3 billion, net of debt, to generate nearly $600 million for Related Commercial. Except for an office condominium at Time Warner Center that is fully owned by RCP, the other properties in the portfolio are all co-owned with partners “with varying degrees of rights with respect to major decisions.”
“We have very strong relationships with all the partners across this portfolio, and would expect any of them to agree to any strategy that Related or RCP outlines with respect to a refinancing or sale of that asset,” Zussman said, adding that transactions continue to take place in the New York market, and “global capital still views New York City as a bit of a safe haven.”
Investors on the call, who had heard reports that “everything is frozen” in New York, expressed concerns about tenants’ ability to pay rent, as well as lenders’ inclination to provide forbearance. One investor noted that in Israel, which now has more than 2,600 confirmed cases of Covid-19, major retail tenants have said they will stop paying rent on April 1.
O’Toole and Zussman pointed to the $2 trillion stimulus bill recently passed by the Senate as cause for some optimism, but much remains uncertain.
“It’s too early to say, and we’ll have a better sense when rent payments are due at the beginning of next month, “ Zussman said. “As you know, our portfolio — 500 Lakeshore Avenue, Abington House, One Hudson Yards — are very high-end residential rental buildings, so that gives you a sense. And 529 West 29th is supported by a federal housing program which provides the majority of the rental income for that building.”
Related Commercial Portfolio’s bond price rose 2.38 percent Thursday after tumbling 15.83 percent the day before. A downgrade by S&P caused the interest rate on Related’s bonds to increase to 6.1 percent from 5.1 percent.