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iStar Financial Considering A Prepackaged Bankruptcy Filing In 2011
Just headlines for now. And since this is the first bankruptcy of a bankrupt company in a while, everyone is carefully watching if its shares will surge. For now SFI is down about 25%. Which means there is about 75% more to go. Because unlike the Obama bankruptcy code dictates, bankruptcy means no equity value. Period.
More from Bloomberg:
IStar Financial Inc., the commercial real estate lender seeking to restructure some of its $8.6 billion of debt, may seek bankruptcy protection after creditors blocked it from amending loans, said people with knowledge of the plan.
The company expects to begin meeting with creditors in coming weeks to discuss potential terms of a so-called pre- packaged bankruptcy, which wouldn’t occur until sometime next year, said the people who asked not to be identified because the plan isn’t public. IStar, led by Chairman and Chief Executive Officer Jay Sugarman, hasn’t yet held talks with creditors on a possible bankruptcy. That process is likely to begin as soon as next month, the people said.
IStar, which has a market capitalization of $370 million after shares lost more than 90 percent of their value since 2007, hired Lazard Ltd. and Kirkland & Ellis LLP to advise on the debt restructuring, the people said. The New York-based company made loans on properties including the Trump SoHo hotel- condominium building in lower Manhattan.
“IStar grew as the markets shot up and concentrated in asset classes that are particularly cyclical such as hotels and construction,” said Ben Thypin, an analyst at Real Capital Analytics Inc. in New York. “Their fortunes are closely tied to the market and their future is now uncertain.”
Bankruptcy is one option the company is weighing. It is also considering a proposal to extend maturities on its debt as well as a potential exchange offer, according to two people familiar with the situation.
Andrew Backman, a spokesman for iStar, didn’t return a phone call or an e-mail message seeking comment. Sugarman didn’t immediately return a call.
Silver Point, Monarch
Hedge funds that hold some of iStar’s $2.9 billion of second-lien loans include Silver Point Capital LP, Davidson Kempner Capital Management LLC and Monarch Alternative Capital LP, according to two of the people. Some of the funds, which are represented by Akin, Gump, Strauss, Hauer & Feld LLP, opposed iStar’s bid to amend terms of the loans to repurchase debt at a discount, the people said.
IStar withdrew the proposed revision and has begun the process of planning for a potential bankruptcy as it is faced with about $2.6 billion in debt coming due next June, one of the people said. The company also has an optional $500 million first-lien debt payment due at the end of September that it may not make, according to the person.
In a pre-packaged bankruptcy, a company negotiates terms of a reorganization with its key stakeholders before filing for Chapter 11 protection, allowing the proceedings to finish in weeks or months rather than years.
Foreclosures
Representatives of Lazard, Akin Gump and Silver Point declined to comment. Representatives of Kirkland, Davidson Kempner and Monarch didn’t return messages for comment.
The company had net debt obligations of $8.6 billion as of June 30, according to a regulatory filing last month. IStar had about $3 billion of non-performing loans as of June 30 and reported an $83.4 million second-quarter loss, excluding income from property sales.
“Convincing lenders that iStar can repay its obligations in full at some point down the road appears to be a tough sell due to uncertainty around the value of its collateral,”
analysts at debt-research firm CreditSights Inc. wrote in a report last month. “Negative earnings continue to be driven by the weak credit performance of iStar’s portfolio.”
IStar foreclosed on nine properties during the second quarter and said loss reserves totaled $1.18 billion, or about
16 percent of the loan volume it manages.
Credit Rating
The company, a real estate investment trust, began in 1993 and was previously called Starwood Financial Trust.
IStar’s debt and equity plunged in the second half of 2007 as commercial-property prices fell and capital markets seized up as losses on subprime-mortgage securities spread to corporate bonds. Moody’s Investors Service in September 2008 cut the company’s credit rating to below investment grade.
While iStar shares have risen more than 55 percent this year, investors who held the stock from the end of 2007 would have lost about 85 percent.
“The firm should not become insolvent and has ample liquidity to operate through 2010, but management faces a significant challenge with $3 billion in debt coming due in 2011 and $3.5 billion due in 2012,” Standard & Poor’s said July 30.
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Fail, bitches.
Company may want to rename itself to iSuck in bk process.
nooooo, no. SUCCEED! SUCCEED!
Clearly they'll go bankrupt and after that launch a new IPO to raise the cash to start all over and be able to pay the big shot bonuses on time.
Actually, this is the classic hedge fund vulture play.
The hedge funds hold the 2nd tier debt, and they are waiting ... obstructively, if forced to ... to step in 'pay-off' the 1st lien (principal only) and then own iStar ... at which they will either re-cap and run for a year or 3 or they will dismember and sell off the good bits for a tidy quick score (since they 'own' the company) that'll just the YTD returns.
So yeah, they're done, stick a fork in 'em, it's just the vultures that insist on being fed.
This vulture routine has been pulled elsewhere, with much fireworks.
iStar better hope their BK judge is on the ball.
The whol
<OT> Did the AUDJPY pair go skydiving?</OT>
I don't think any company should go bankrupt ever. It is clearly unfair that, say, Microsoft makes a lot of money, and iStar don't - the solution therefore clearly is to tax Microsoft harder, and transfer subsidies to iStar.
That way, companies don't have to worry about pesky things such as, say, profitability, and can focus on making the company the best place to possibly work, including a big, fat, retirement scheme for everyone, regardless of skill.
<sarc/>
This should be good for IYR lol. The index should be at new highs on this news!!! DRV/SRS fans will just have to wait.
"While iStar shares have risen more than 55 percent this year"
Yeah. This.
"bankruptcy means no equity value. Period."
I dunno, the equity side of my GGP trade is up 30x since I bought them right after it was certain they were going to file and the shares crashed.
All they need is a HAMP check and a little time to milk it for some large management fees. It should be impossible to kick out such an attractive management team.