Coldwell Banker restructures $61.7 million debt; realty firm's new 8-year loan has floating interest rate.

Coldwell Banker restructures $61.7 million debt

Realty firm's new 8-year loan has floating interest rate

Downtown Los Angeles-based real estate brokerage firm Coldwell Banker Commercial Group Inc. last week announced a $61.7 million debt restructuring that it said will save the company several million dollars a year in interest and related costs.

The restructuring involved retiring $61.7 million in high-yield subordinated notes with a new, lower-interest loan from Sumitomo Finance (Dublin) Ltd., an affiliate of Sumitomo Bank.

Coldwell Banker's new eight-year loan carries a floating interest rate four points higher than the London Interbank Offered Rate, roughly equivalent to the U.S. prime rate. The loan's effective rate was about 12.5 percent last week, compared with a 16.5 percent effective rate on the retired notes.

The company's chairman and chief executive, James Didion, touted the restructuring in a prepared statement, "The fact that we accomplished this in spite of the current negative environment for this type of financing is a real compliment to the company's strategies, people and market position."

Coldwell Banker has continued to operate under a $252 million debt load it took on last year when a management-led buyout group bought the company from Sears, Roebuck & Co. for about $300 million.

After the leveraged buyout was complete, the purchasing group raised $47 million by selling a 44 percent equity stake in the company to Coldwell Banker employees. About $20 million of that was used to reduce the debt load to about $232 million.

Some $170 million of that total debt continues to be held through a senior secured credit facility with Sumitomo Bank. That credit facility carries a floating interest rate 2.5 points higher than the London Interbank Offered Rate.

The remaining $61.7 million, until last week, was held as subordinated notes with an effective interest rate of 16.5 percent.

"Our original intent was to go to the bond market," explained Jesse Harrill, a Coldwell Banker spokesman. "But when that market evaporated, we exercised our option to convert our bridge loan to subordinated notes. But we always considered that an interim step until we could find more favorable terms."

Those terms were provided last week by Sumitomo Finance (Dublin) Ltd. And Coldwell Banker officials proclaimed the new financing, having come from an affiliate of its major secured creditor, reflects Sumitomo's confidence in Coldwell Banker's future.

"They (Sumitomo) have watched our business actions and financial performance over the past year and have been very pleased," Harrill said.

Coldwell Banker remains a privately held company. However, the company claimed its operating profit rose 23.4 percent in the quarter ended June 30, 1990, compared with the same period a year ago, and that its operating profit for the first six months of this year is 12.5 percent above the first six months of 1989.

"Either the market isn't declining, as everyone says it is, or we're gaining market share," Harrill stated. "Quite frankly, we think it's the latter."

The company refused to disclose actual profit figures. But it did report revenue figures, which were down slightly from last year.

Specifically, Coldwell Banker reported second-quarter revenues of $107.5 million, off 1.8 percent from its second-quarter 1989 revenues of $109.5 million.

Revenues for the first six months of 1990 were $209.9 million, a 2.0 percent decline from the $214.2 million the company took in during the first six months of 1989.

The company attributed its revenue decline to a recent restructuring of its property management operations.

About two months ago, Coldwell Banker suddenly fired 90 of its 390-person property management staff, and simultaneously resigned from about 25 percent of the 80 million square feet of office space it was managing.

"We phased out our smaller properties because commercial real estate is becoming increasingly owned by either institutions or very large individual investors. And we wanted to get our company back in line with the market," Harrill explained. "But that restructuring had little to do with our improved operating results."

Harrill attributed the company's higher profits to a cost-cutting program launched after last year's buyout.

"Our operating costs are down by 4.1 percent so far this year, and that's almost entirely as a result of our cost-containment initiative," he said. "With the firm now 44 percent owned by employees, everyone is highly motivated. Our managers have done a great job of keeping costs under control."