Top creditors express confidence in Rock Ctr.

Julien J. Studley and Newmark & Company are among the top creditors of Rockefeller Center, along with several law firms whose leases were re-arranged with the Center.

While bankruptcy experts and even sources close to the debtor questioned whether they would ever get paid close to what they are owed, the firms are remaining loyal and expressing confidence in Rockefeller Center.

Jeffrey B. Gural, president of Newmark & Company, which is owed $1.39 million, said "I think we will do business with them and I assume they will put themselves in a position to pay their creditors and leasing obligations. It remains to be seen what their [bankruptcy] plan is. We haven't ruled out doing business with them at all."

Ira Schuman, executive vice president at Julien J. Studley, said they are completely confident that everything is going to get paid. "I have great confidence in the future of Rockefeller Center and the bankruptcy is more a struggle among parties and among ownership rather than real distress. This is a battle among titans for control of a trophy and has very little to do with distress."

Schuman also noted the $1.7 million owed to Studley is from recent commissions. "They've always paid their bills on time," he added.

Other creditors include E.J. Electric Installation that is owed 984,000; E.O. Osman Co., owed 930,384; Tishman Construction Corp., which is owed $360,000, and the New York City Department of Transportation, that is owed $2.173 million for tunnel rent. Lazard Freres & Co. is the largest unsecured creditor, with $5.95 million owed on a lease obligation. Another creditor is Cerberus Pyrotechnics, the fireworks folks, who are owed $1.939 million.

Last week's REW reported the real estate investment trust's current and zero coupon obligations were all retired with the Goldman Sachs money. According to REIT secretary Stephanie Leggett Young, who clarified the matter, only a portion of those were re-purchased, 36.4 percent of the current coupons and 38.4 percent of the zeros. "We were able to re-purchase those by issuing commercial paper," she said.

The bondholders are in a better position now than they were before the Goldman deals, she noted, because now the bonds are secured by a pledge on the mortgage. The mortgage, amounting to $1.3 billion, is owned by the REIT. Prior to that deal, concluded only last December, the bonds were unsecured.

At that time, Goldman Sachs and the Whitehall Group funded a $225 million debt restructuring, broken into two pieces. According to other sources, one is a debenture purchase agreement for $75 million with interest at 14 percent and that must be redeemed with available cash-flow, presumably after dividends for the REIT to preserve its status. It also provided for an agreement for Whitehall to purchase 4,157,000 shares of the REIT at $5 and stock appreciation rights for an additional 5,238,000 shares of stock. "Those are convertible to 14 percent debentures," said the source.

Another piece was a Goldman Sachs Mortgage Company financing for $150 million at an interest rate of prime plus 3, pre-payable at any time.

Some sources familiar with the operations believe this re-funding allowed the Goldman Sachs interests to be in a position to take over the property in the future and they, of course, have the most upside in any restructuring.

Young insisted, "Goldman is a creditor of the REIT and we will be paying them interest. They have a potential equity position, but it would not give them ownership." She said one member of the board now is Daniel M. Neidich from Goldman Sachs, as part of the agreement called for them to appoint one member. "This director has a fiduciary obligation to the shareholders and Goldman has the potential to be a shareholder," she added.

Young said the REIT will take actions to take over operations of the property and foreclose on the mortgage.

Meanwhile, two-thirds of the bondholders must approve any restructuring and those bonds, Young said, are bearer bonds traded on the Luxembourg exchange. "It's very typical with Eurobonds," she said. "You would run an ad to find them, there are no lists."

Sources close to the parties said the debtors were aware of the tax consequences and issues with capital gains liabilities on the forgiveness of debt when they filed for bankruptcy. "The fact is the owners understood the tax consequences and understood there was no alternative to the bankruptcy filing," said one person familiar with the situation.

Bankruptcy experts explained the Center already has huge losses and would already be covered by the forgiveness of debt issue. Howard Karasik, a partner with Sherman Citron & Karasik, explained that ordinarily when there is a release of indebtedness on a Chapter 11, there is no income tax consequence. So while there may be a Cuomo tax owed, as a result of the Standhope Hotel case, if the Center re-arranges title through stock ownership, there wouldn't be capital gains owed because of the bankruptcy court Chapter 11 rules.