LNR Launches Restructuring Plan

NEW YORK/CHICAGO (Reuters) – LNR Property Corp, owned by Cerberus Capital Management, said on Wednesday it is launching a debt for equity swap as it seeks to recapitalize its business.

LNR, one of the largest special servicers of commercial mortgage backed securities (CMBS), said it is launching a $400 million equity rights offering backed by shareholders and noteholders to help refinance an almost $900 million loan.

The company also said Goldman Sachs Group (GS.N) and Bank of America Corp (BAC.N) will be lead arrangers on a new $445 loan to LNR that, together with the equity rights offering, will refinance an existing $868 million senior secured term loan.

The proceeds also will help LNR cancel a $150 million revolver loan and pay transaction fees and expenses, it said.

LNR’s existing $420 million holding company debt will be converted to equity as part of the restructuring, LNR said.

When a loan that has been securitized into a CMBS is in default or is about to default, it is transferred to a special servicer. The servicer can extend or modify the loan, or sell the property to recover as much cash as possible for the CMBS bond holders.

In addition to handling troubled loans that have been packaged into CMBS, some firms such as LNR, also invested in the riskiest pieces of the deals it often handled.

However, the commercial real estate industry went into a tailspin about two-and-half years ago, and many borrowers defaulted on their loans wiping out those risky investments.

A source familiar with the matter said on Tuesday that Vornado Realty Trust (VNO.N) could take a stake in LNR as part of a restructuring.

Michael Fascitelli, Vornado chief executive, on Wednesday declined to comment specifically on LNR. However, while speaking at the National Association of Real Estate Investment Trust Investor Forum in Chicago, Fascitelli said that special servicers will likely provide good sources of possible acquisitions and investments.

“The special servicing area has a lot of assets going in, more assets than are going out,” he said. “We expect there to be a great source of opportunities coming out of the special servicing, CMBS area. We’re looking for assets where we can find them.”

Vornado has a zero balance on its $2.5 billion revolving credit line.

Later, when asked by Reuters if another servicer CWCapital also would be a good source of potential deals, Fascitelli said, “yes.”

CWCapital’s chief investor, Canadian pension fund advisor Caisse de depot et placement du Quebec has decided to sell its controlling interest in CWCapital. When asked if Vornado may be interested in buying that stake, Fascitelli said, “I can’t comment on that.”

Cerberus took LNR private in 2005, according to LNR’s website. LNR was spun off from Lennar Corp (LEN.N) in 1997 separating the homebuilding business from its real estate, finance and management business, the website said. (Reporting by Elinor Comlay and Ilaina Jonas; editing by Carol Bishopric)