The landlord at the center of Sweden’s property crunch has entered into talks with a large group of bond investors in an effort to shore up its finances.
(Bloomberg) — The landlord at the center of Sweden’s property crunch has entered into talks with a large group of bond investors in an effort to shore up its finances.
SBB, as Samhallsbyggnadsbolaget i Norden AB is more commonly known, said on Friday that it was seeking to strengthen liquidity and had started several parallel processes including the possibility of listing subsidiaries.
The group, advised by PJT Partners, involve holders of bonds across SBB’s maturity curve. Members are long-only investors and hedge funds, and include Blackrock Inc., Man Group Plc and Carmignac Gestion SA, according to people familiar with the discussions. SBB declined to comment on details of the talks.
“Lenders, including bond holders, are one of our largest stakeholders and it’s natural to have constructive dialogs with them regularly,” Leiv Synnes, the newly installed chief executive officer, said in an interview.
He added that a potential breach of debt terms were not part of those discussions. “We have been clear with that we’re meeting our covenants,” he said.
SBB has seen its share price plunge more than 90% since hitting a peak in late 2021 amid intensifying pressure to get its finances under control. The company, which borrowed heavily in the era of cheap money, has found its $8 billion debt pile increasingly unsustainable amid sharply rising interests and falling property valuations.
The shares rose as much as 4.9% shortly after trading opened in Stockholm. SBB’s euro-denominated bonds maturing in 2027 rose 1.3 cents on the euro to 69.9 cents, according to data compiled by Bloomberg. As concerns over SBB’s liquidity situation have grown, many of the company’s bonds have fallen to trade at close to distressed levels.
Read More: Why a Crisis Is Looming in Commercial Real Estate: QuickTake
The Stockholm-based company’s struggles are part of the turmoil in real estate markets, as higher interest rates depress valuations around the world. Its troubles also risk becoming a broader issue in Sweden as the company owns many public-sector buildings like nursing homes and schools.
SBB’s situation deteriorated in early May after its credit rating was downgraded to junk status by S&P Global Ratings. Since then, the company has postponed a dividend, ousted its founder Ilija Batljan as CEO and put the whole firm as well as individual assets up for sale. Efforts to raise cash include exclusive discussions with Brookfield Asset Management to sell its remaining 51% stake in subsidiary SBB EduCo AB.
The PJT-advised bondholders — including Carmignac, Polus Capital Management and Anchorage Capital Group — are keeping a close eye on how those talks unfolds, said the people who asked not to be identified because the talks are private.
Last month, another set of investors that called itself B2023 Funds — which had taken up holdings in SBB’s so-called social bonds — wrote to the firm claiming it was in breach of financial covenants. That could have triggered an “event of default” and allowed investors to demand repayment once a grace period expired on June 29.
The company’s reported interest coverage ratio totaled 2.9 for the second quarter. That’s higher than the 1.5 covenant threshold, which had been the grounds for the B2023 challenge. The PJT-advised group took a more wait-and-see approach, and part of the B2023 group joined forces with Carmignac, Polus and the others.
What Bloomberg Intelligence Says:
SBB’s bond prices may remain weak on news that the company is speaking to a large group of bondholders. The CEO has said this won’t include changes in bond terms, and the talks may not be a complete surprise.
—Tolu Alamutu, BI real estate credit analyst (Click here for more)
Tasked with rolling over $1.6 billion of maturing bonds over the next three years, SBB is racing to find buyers for properties as well as raising fresh capital. On Thursday, the company said it signed letters of intent to sell properties worth more than 3 billion Swedish kronor ($293 billion) to existing tenants.
The discussions with bondholders come as the Stockholm-based company’s operations took a turn for the worse. SBB reported a net loss of 9.9 billion kronor in the second quarter, due to revaluations as a result of increased yield requirements. The figure was significantly higher than analyst estimates of a 2.88 billion kronor loss. Rental income fell 7% from a year ago to 1.75 billion kronor.
“Creditors, shareholders and employees are all currently working towards the same objective – safeguarding value for all stakeholders,” Synnes said in the report.
–With assistance from Libby Cherry, Laura Benitez and Irene García Pérez.
(Adds details on bondholders talks)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.