(Debtwire) Aggregate Holdings makes progress on disposals though liquidity tight ahead of Vivion Furst and VIC put payments

Aggregate Holdings has taken steps via asset disposals to improve its liquidity but still faces pressure from upcoming payments for its Furst acquisition and subsidiary VIC's convertible bondholder put options. This left three investor sources cautious with a fourth attracted by the juicy 20.55% yield on the bonds.

The Luxembourg-based real estate company, which has a 26.6% stake in German real estate company Adler Group, disclosed on its impromptu 3Q21 December investor update that it had sold its stakes in S Immo and Corestate Capital, as reported. Usually, the group only reports semi-annually.

However, management failed to provide an updated liquidity number for 3Q21 or for late December when the call took place, raising additional concerns.

“I was shocked Aggregate Holdings didn’t give a liquidity number. If they had made good headwinds, they would have jumped up and down boasting about their liquidity,” one investor source said.

Its cash position at 1H21 was EUR 448m and the company has since raised a EUR 100m bond tap as well as a EUR 129.8m convertible bond maturing in August 2024. It has also received a EUR 22.4m loan from Adler Group’s subsidiary Consus.

Aggregate Holdings needs extra liquidity to complete the acquisition of the Furst Berlin asset complex from Germany-based real estate investment company Vivion. As part of the transaction, Aggregate Holdings is expected to make a cEUR 300m payment in June 2022 to Vivion, according to two sources familiar with the situation.

Positively, Aggregate Holdings may be able to defer the cEUR 300m payment to Vivion, aiding its liquidity position, two of the investor sources speculated.

“How hard can it be?” independent special situations firm Sarria noted. “Fürst is fully financed and Vivion neither want it back, nor do they look like they’d know what to do with the cash right now. If it takes three months longer, it might just cost something.” 

As part of the Furst transaction, the EUR 220m tradeable securities which Vivionreported it received from Aggregate at 1H21 consisted of Aggregate bonds, the two sources familiar said.

“The exposure of the EUR 220m securities has now reduced down to an insignificant amount and the bond holdings have real estate security attached. Vivion has no direct exposure to Aggregate Holdings due to additional securities that were provided to Vivion”, the first source familiar with the situation pointed out. “No extensions for the cEUR 300m June 2022 payment deadline are expected.”

Aggregate Holdings and Vivion declined to comment.

Aggregate Holdings may also face an additional EUR 250m liquidity pressure in 2Q22 from its subsidiary VIC Properties’ convertible bond payment to investors who can exercise their put option (see chart below for Aggregate Holdings company structure from 3Q21 presentation).

VIC Properties issued EUR 250m of secured pre-IPO convertible bonds back in April 2019 with a 3% interest rate and May 2025 maturity. However, bondholders have the right to request early redemption of the convertible bonds on the third and/or fourth anniversary after issuance (which would mean May 2022 or May 2023) at a redemption amount plus all remaining interest payments up to and including the maturity date, as reported.

On VIC, it seems Aggregate Holdings is looking at other options rather than just cash repayment so the VIC bonds could require an amend and extend, the first investor source noted.

To raise further liquidity, the company recently sold its stake in German real estate manager Corestate Capital though it was the separate entity Aggregate Holdings 2 and sister company Passiva Participations that jointly held the 19.7% stake at 1H21. Aggregate Holdings 2 is a subsidiary of Aggregate Holdings but Passiva Participations is a sister company, meaning not all the proceeds may immediately directly flow through to Aggregate Holdings.

With Corestate Capital having a cEUR 400m market capitalisation in December, this could imply proceeds of around EUR 79m.  

Aggregate Holdings also had EUR 532m of other financial assets at 3Q21 including minority stakes in unlisted companies as well as its loan portfolio, both of which it could try to monetize. It already disposed of its S Immo stake and expects further sales in 1H22.C“An update on liquidity would have been helpful, but it was clearly not something worth shouting about. Also the timing is now sensitive while negotiating at so many levels,” Sarria said.

They will receive a boost from the Corestate stake sale but most of the Corestate stake was held at Aggregate 2, which is separate and direct holdings were small, so that should strengthen [Aggregate shareholder] Walcher’s negotiating position, Sarria added.

No prize for Furst place

Securing further liquidity from tapping capital markets looks difficult given Aggregate Holdings’ bonds trade at distressed levels. Its unrated EUR 600m 6.875% senior unsecured 2025s are down at 66-mid yielding 20.55% to-worst, according to Markit. The bonds were indicated as low as 55-mid in mid-October 2021.

“How will they deal with the VIC convertible and how would they come to the high yield market to refinance?” a third investor source said. “There will be volatility and without capital markets, we are unsure the [outstanding] structure with the leverage and current use of debt is sustainable.”

One option could involve a distressed exchange offer with Aggregate Holdings’ debt exchanged for other debt and real estate used as collateral, a fourth investor source suggested. However, management noted on the 3Q21 investor call that there are no plans to exchange VIC debt into Aggregate debt, stating that “we’re confident [the VIC Holdco level refinancing] can be done based on the VIC balance sheet.”

Click HERE for the 3Q21 investor call transcript.

There are sources of capital available to the company that should allow it to prevent triggers, Sarria noted. “If not, the alignment of creditors at Holdco is too great to allow a scenario in which it falls apart uncontrollably.”

“Relative to the overall net asset value – however you look at it – the liquidity required to hold on to the equity is small. Bondholders could bring it, but chances are someone else will before – probably Walcher or someone close,” Sarria continued. “The situation is not too bad and I’m reasonably positive.”

Inflationary pressures, however, are another reason for concern, as projects may get delayed and perhaps explains why banks don’t want to lend at current levels, according to the first investor source.

Another concern is the upcoming rise in the loan-to-value ratio. Aggregate Holdings disclosed in its 3Q21 investor update that its LTV was 53.9% but is expected to climb to between 60%-65% at FY21 due to the impact of the low Adler Group share price. It should then return to at or below 50% in the medium-term.

Aggregate Holdings boasted a low 1H21 reported LTV, growing gross development values and an experienced management team. But the company’s adjusted LTV climbed to 62.8% when stripping out goodwill inclusions while project concentration risks, a potential upcoming put payment and negative cashflow in terms of sources and uses mean the previous drop of its unrated bond was warranted, as reported.

A positive for investors is the valuations of assets made by Aggregate Holdings, which are close to fair value unlike the previous valuations on Adler Group acquired subsidiary Consus assets, as reported.

“There is value in some of the assets though the bonds are not in the best position as they are not as close to the assets as they would like to be in these situations,” the third investor source cautioned. “This means there is not visibility on what the liquidity and maturity profile looks like.”

 by Adam Samoon