Strong performance places Chapter 11 mortgage company back on solvent track.

Strong performance places Chapter 11 mortgage company back on solvent track

Charles Wilbur (Bill) Strong Jr., president and chief executive officer of Mortgage & Realty Trust, last week announced making the first semiannual principal payment under a reorganization plan approved Feb. 27.

Burbank-based MRT made a principal payment of $15.6 million to reduce outstanding debt to $374 million, Strong reported. The U.S. Bankruptcy Court-approved reorganization plan required the real estate investment trust to cut its outstanding debt to not more than $380 million by June 30, he noted.

Strong expects to record a net loss again this year (MRT lost $10.36 million last year and $16.54 million in this year's first half), but "we've had sufficient cash flow thus far to perform a little better than the plan called for," he said. The REIT also made the quarterly interest payment of $9.3 million on the debt, Strong added.

Under the plan, he said, the interest rate initially was set at the bank prime lending rate (currently 8.50 percent) plus 1 percent. But since MRT's rate rises one-quarter of a percent every six months, the REIT has an incentive to prepay.

The next semiannual principal payment is due Dec. 31, Strong said, when the plan calls for the outstanding debt to be pared to not more than $340 million. The final payment is due by June 30, 1995.

Although reported assets (currently totaling $525 million) all along have exceeded liabilities, MRT fled to Chapter 11 bankruptcy protection April 12, 1990. That was after Standard & Poor's Corp. downgraded the REIT's commercial paper to A-3 from A-2.

The downgrade made it impossible for MRT to sell its short-term paper and, thus, unable to pay off a relatively small loan of $13 million that matured March 13, 1990. That placed the REIT in technical default on other longer-term debt that then became payable.

Rather than have a fire sale of real estate assets in a depressed real estate market - "I've never seen it this bad" - Strong opted for Chapter 11 to buy time to liquidate assets in an orderly fashion. It's "proceeding to plan," he said, but there still is plenty of "gut wrenching" because of the "oversupply of real estate."

Indeed, the worst may not be over, suggested Strong, who has been involved in real estate the last 37 of his 61 years. He predicted there will be real property bargains for an investor to buy, but they're not here yet.

To be sure, MRT has enjoyed some recovery on the New York Stock Exchange where the share price had jumped up 71 percent to $3 last week from the 52-week low of $1.75. Yet, last week's price still was 52 percent below the 52-week high of $6.25 and a sickening 80-odd percent below the high of nearly $19 in 1989 - well before the REIT was struck by S&P's calamitous downgrade.