Under the compromise agreement with KeyBank, Gramercy is making a cash payment of $45 million and will pay--over time--an additional $15 million from a portion of free cash flow generated by its 2005, 2006 and 2007 collateralized debt obligations, according to an SEC filing. The KeyBank credit facility, which dates from 2007, had an unpaid balance of $172,576,404 as of last month, the SEC filing states. According to the SEC filing, the reduced principal balance is a non-recourse obligation on the part of Gramercy.
The release states that Gramercy on March 27 satisfied all of its obligations under the repurchase facility with JPMorgan Chase via a $1.9-million cash payment and allowing JPMorgan to assume full ownership and control of--and responsibility for--the related loan asset. Clifford Chance US LLP served as Gramercy's restructuring counsel for both transactions, while Barclays Capital acted as its financial advisor in connection with the KeyBank transaction. Previously, Goldman Sachs also acted as Gramercy's financial advisor on the KeyBank deal.
At the same time, Gramercy and its advisors continue negotiations on amending its credit facility with Wachovia Capital Markets and its master repurchase facility with Goldman Sachs Mortgage Co. In Gramercy's 2008 annual report issued last month, the company said the two debts combined had an outstanding balance of $95.9 million at the end of last year.
In February, Gramercy announced that it had exchanged $150 million of its trust preferred securities for $150 million of newly issued unsecured junior subordinated notes of GKK, its operating partnership subsidiary. In connection with this, the company has agreed not to make any distributions on, or repurchase of, its common or preferred stock for all of this year, "other than as may be required to maintain our REIT status," according to the annual report. The new notes bear a fixed annual interest rate of 0.5% for a three-year period ending Jan. 29, 2012, and a fixed interest rate of 7.5% per annum thereafter through maturity on June 30, 2035.
All of these actions reflect the state of the market, Gramercy indicated in its annual report. "It is difficult to predict when conditions in our business will improve," according to the annual report, which was signed by CFO John Roche. "We expect that the adverse circumstances and trends in our business and securities will continue through at least the remainder of 2009, and will begin to improve thereafter only as the credit markets and overall economy improve."<p.The report notes that "continued disruption in the global credit markets" may hamper Gramercy's ability to repay or refinance debt "and our ability to operate and grow our business. We have responded to these difficult conditions by decreasing investment activity when we observed deteriorating market conditions, increasing our liquidity and extending debt maturities." A spokesman for Gramercy says the company will not provide further details beyond what is contained in news releases.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
