Background

Four limited liability partnerships (LLPs) owned commercial parks in eastern Germany, where the anchor tenant was a well-known supermarket chain. The global economic crisis led to a material decline in the value of the LLPs properties, which in turn resulted in a breach of the loan-to-value covenant. The secured lender became concerned over a lack of engagement from management, which ultimately led to an application to the court to appoint administrators.

Action

Two FRP partners were appointed joint administrators of the four LLPs. They immediately appointed alternative asset managers, as a lack of engagement by the members of the LLPs had resulted in fractious relationships with the existing asset manager and tenants. This in turn had resulted in reduced rental receipts, which were part of the lender’s security package. Once the relationships had been stabilised, discussions were held with the tenants to re-gear the leases, enhancing the value of the property assets owned by the LLPs. This allowed steps to be taken to market the properties for sale, following a multi-year hold to allow market conditions to recover.

Outcome

Our Restructuring Advisory team were able to secure the successful sale of the properties. The value enhancement process undertaken by the joint administrators and the asset managers enabled repayment of the secured lender’s facilities in full. A surplus was also made available for creditors, despite the properties having been valued at materially less than the lenders secured debt pre-administration.