Gramercy Capital Corp. lenders have asked Houlihan Lokey for advice on strategic options as the real estate company weighs restructuring about $800 million of debt, according to two people with knowledge of the situation.
Goldman Sachs Group Inc. and Citigroup Inc., holders of part of Gramercy’s mortgage and mezzanine loans, are part of a creditor group that tapped Houlihan, said the people, who declined to be identified because the talks are private. Options for the company, which leases branches to Bank of America Corp., may include a debt refinancing, asset sales or a pre-packaged bankruptcy, the people said.
Gramercy amended terms on $553.5 million of mezzanine loans and $241.3 million of mortgage loans last month and warned that a portfolio of properties is expected to have negative cash flow, according to regulatory filings. The New York-based company said that it hired an adviser for a potential debt restructuring and agreed to provide lenders with a proposal.
“Lenders may have an incentive to work things out with the company because a lot of Gramercy’s business is intertwined with theirs,” said Ben Thypin, senior market analyst at New York- based research firm Real Capital Analytics Inc. “A potential pre-packaged bankruptcy stays with that theme of a coordinated restructuring effort.”
Gramercy shares plunged 21 percent to $2.53 in New York Stock Exchange composite trading, the biggest drop since March 15. They have lost 2.3 percent for the year.
The mortgage and junior mezzanine loan changes were made with Goldman Sachs Mortgage Co., a unit of Goldman Sachs, and Citicorp North America, a Citigroup unit, according to a regulatory filing. An agreement to amend a senior mezzanine loan was made with KBS Debt Holdings LLC, the filing said.
Gramercy Chief Financial Officer Jon Clark and Houlihan spokesman Michael Utley declined to comment. Representatives of Goldman Sachs and Citigroup also declined to comment.
A mezzanine loan typically gives the lender the rights to convert the debt to an equity interest in the company if the loan isn’t paid back in time and in full.
Gramercy, which owns and finances commercial real estate, has lost about 87 percent of its market value in the last two years as commercial real-estate values fell 42 percent from an October 2007 high. U.S. office vacancies rose to the highest since 1994 in the first quarter, Reis Inc. said on April 5.
Gramercy, which reported a fourth quarter net loss of $100 million, is among the companies with a claim on Stuyvesant Town- Peter Cooper Village, the apartment complex on Manhattan’s east side that is facing foreclosure.
Top tenants for Gramercy Realty, which held 25.6 million square feet of rentable commercial real estate, were Bank of America Corp., Wachovia Bank, Regions Financial Corp. and Citizens Financial Group as of Dec. 31, according to regulatory filings. Gramercy, which is being advised by EdgeRock Realty Advisors, said last month that the Gramercy Realty portfolio “will experience significant rollover, rent step-downs and capital requirements during the next 12 months.”
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 rather than years. Los Angeles-based Houlihan Lokey has advised creditors on some of the biggest bankruptcies in history, including CIT Group Inc. and General Motors Co. last year.
To contact the reporters on this story: Jonathan Keehner in New York at firstname.lastname@example.org;