Real Estate Giant in Canada Enters Bankruptcy Filing
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Olympia & York Developments Ltd., the world’s largest real estate development company, whose office towers have altered skylines in New York, London and throughout Canada, filed for the equivalent of bankruptcy protection in a Toronto court last night after three months of negotiations with lenders failed, bankers and other people close to the company said. Olympia & York is the biggest company ever to file for bankruptcy protection in Canada. Analysts and bankers have long expressed a fear that if the company was forced to file for bankruptcy, the world’s financial and property markets would be roiled. The entire Olympia & York empire, which is owned by the Reichmann family of Toronto, has debts in excess of $18.5 billion and has been trying to restructure about $12 billion of debt. Could Hurt Banks Office rents, building prices and bank balance sheets in the United States already reflect such a weak property market that Olympia & York’s bankruptcy filing is unlikely to cause much further harm, real estate and banking experts said yesterday. In New York, the company’s most prominent property is the World Financial Center on the southern tip of Manhattan. But the financial problems could have an impact on some major banks in Europe, Canada and Japan as well as some New York banks, including Citicorp, J. P. Morgan & Company and Chemical Bank. Those American banks have already reserved for potential losses but investors could drive down stock prices. [ Page D6. ] Although pressure on the property company had been mounting as it missed various debt payment deadlines over the last two months, the possibility that its flagship office towers in Toronto might be seized today by bondholders pushed the Reichmanns to seek the protection of the courts. The company missed a $14.1 million payment on the 72-story First Canadian Place tower yesterday. 29 Companies Involved Earlier this week, J.P. Morgan moved to foreclose on a financial asset owned by one of Olympia & York’s subsidiaries, after the parent company had failed to make a required payment to the bank. The company sought relief for 29 Canadian companies, mostly part of the company’s vast development operations, some of which have assets in the United States. Most of the companies were put under the Company Creditors Arrangement Act in a hearing last night. Some Canadian companies with assets in America also filed in the Federal Bankruptcy Court in New York for protection under Chapter 11 of the United States Bankruptcy Code. In the short term, this desperate move by the property giant will not have immediate impact on most of the nearly 23 million square feet of office space the company owns in New York City nor will tenants feel any immediate impact. But Olympia & York’s position remains extremely tenuous, and it is not known whether yesterday’s move will undermine the efforts of the company to keep the remainder of its sprawling empire out of the courts. Yesterday’s filing in Canada will allow the company to continue negotiating with its banks to raise additional funds to meet its steady cash needs. Last week, in a London meeting with 15 of its largest bank lenders, the company asked for a moratorium on most of its interest and principal payments on its debts and offered to give up an equity stake in the parent company as well as its 71-acre Canary Wharf project in the London docklands. The company faces very different cash needs in Canada, London and the United States. It is still trying to meet payments in the United States using money generated from its American properties. But in Canada, the need for large amounts of cash would have required that its bankers step in to help the company make payments as they came due, a step bankers there refused to take — including the company’s biggest backers. It is unclear whether other bank creditors will continue to negotiate as a group, or will move separately to protect their own interests by seizing collateral or asserting their own claims. One banker suggested yesterday that the filing had simply moved the negotiations into another forum, and would not substantially derail the restructuring talks. Source : query.nytimes.com |