In pawnbroking, a borrower negotiates a loan, pledging some item they own as collateral — the pawn. They get the collateral back assuming they repay the loan within a negotiated period.
Normally, pawnbroking ends up costing the borrower. Unless perhaps, you also lent the pawnbroker the money they used to buy your pawn in the first place.
When Metrovacesa (or rather, a subsidiary thereof) bought HSBC’s Canary Wharf HQ for £1.1bn in the Spring of 2007, it was the biggest property deal in UK history.
HSBC agreed a 20 year lease-back from Metrovacesa, with an annual rent of £43.5m.
The catch was that HSBC provided Metrovacesa with an £810m bridge loan to fund the purchase.
You see where we’re going?
HSBC has been trying to refinance the bridge loan for Metrovacesa. It’s gone to the debt markets on several occasions over the course of the past year, but with no luck.
The bridge loan matured yesterday. With HSBC themselves seemingly unwilling to negotiate a further loan, Metrovacesa has been forced to propose selling the Canary Wharf tower back to HSBC. At a steep discount to the £1.1bn it paid: Metrovacesa’s board announced this morning that it has proposed a price of £838m. HSBC, meanwhile, has only confirmed it is “in talks”.
Assuming the sale occurs, Metrovacesa will crystallise a loss of €97.7m.
That though, is not the half of it. The property giant has north of €7bn in various loans that it has used to finance an aggressive commercial and residential property expansion across Europe.
It might thus be that the loss on 8 Canada Square proves the – particularly large – straw (trunk?) which breaks the camel’s back.
Earlier this month, the Spanish market regulator demanded that Metrovacesa disclose information about its various loan facilities. Metrovacesa revealed that the terms of a €3.2bn syndicated loan might be breached when they were tested at the end of the year. Though, in fact, a spokeswoman insisted that Metrovacesa was “on course” to meet the terms.
Which is odd. Because it doesn’t really look like it is. Especially not after today’s events.
In September, Metrovacesa’s core earnings are 2.13 times its financial costs, whereas the covenants require them to be at 2.25 times.
More troubling too: the loan covenants require that Metrovacesa maintains its debt at no more than 55 per cent of asset value. According to the company’s September results, debt stood at 54.4 per cent of asset value.
The property giant is clearly dancing on a knife’s edge.
Barely a month ago, it squeeked through a deal on another London property: Walbrook Square. Metrovacesa eventually came good on its commmitment to pay £240m to Legal & General for the site, but not after considerable umming and ahing over whether to walk away and forfeit the £12m deposit.
For shareholders, the best hope might be that the Sanahuja family – who own 80 per cent of Metrovacesa – might move to buy up the remaining stock. But the Sanahuja’s have problems of their own. As property week reports, the family has appointed Lazard to advise them on their own precarious financial situation. The family borrowed €4bn to buy its stake in Metrovacesa. Money which now also, needs to be refinanced.
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