Aurelius Capital Questions IVG Immobilien’s Recovery Estimates

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NEW YORK--(BUSINESS WIRE)--

Aurelius Capital Management, LP is issuing this statement to express two disagreements with the recovery estimates appearing in the Press and Investor Relations Release issued on July 12, 2013 by IVG Immobilien AG (“IVG Parent”). Aurelius-managed entities own more than 30% of the Convertible Bonds issued by IVG Finance B.V. (“IVG Finance”) and guaranteed by IVG Parent, as well as a much smaller portion of the Perpetual Subordinated Securities issued by IVG Parent.

Aurelius has been endeavoring to engage with the IVG companies and their creditors with the objective of negotiating a consensual restructuring and placing the IVG companies on a strong financial footing. In this process, Aurelius has consistently urged the IVG companies to provide as much publicly available transparency as practical. Although the present release challenges details in some recent disclosures, Aurelius commends the IVG companies for providing those and other disclosures. Transparency helps all interested parties to identify where disagreements exist and then to attempt to resolve them. Aurelius looks forward to working with the IVG companies and other creditors to resolve these and any other issues.

In its July 12 release, IVG Parent provided ranges of estimated recoveries for various creditor classes, based on its Entity Priority Model (the “EPM”). IVG Parent has posted a summary of the EPM on its website.1 While disclosures of this nature can facilitate a consensual restructuring, Aurelius is concerned that the July 12 release and the EPM may prove counter-productive because, according to Aurelius’s analysis, the EPM contains erroneous assumptions that inflate the recovery for so-called Syn Loan I and understate the recovery for Convertible Bonds.

Aurelius believes that the EPM is based on at least two erroneous assumptions. First, the EPM assumes that the €400 million loan that IVG Finance made to IVG Parent – IVG Finance’s only material asset – will be completely disregarded.2 Aurelius believes that if this assumption were correct, this intercompany loan was a loan in name only and instead amounted to a dividend. If so, it would be difficult for Aurelius to understand (i) how IVG Finance could have remained solvent upon making the unenforceable “loan” and (ii) how several statutorily required balance sheets for IVG Finance could have recorded that “loan” as an asset at all, let alone have recorded it at its full face value plus accrued interest. Aurelius believes instead that this intercompany loan is entitled to share pro rata with other unsecured debts of IVG Parent.

Second, although the EPM recognizes (appropriately) that the liens partly securing Syn Loan I could be invalidated as having been granted during 2012, the EPM also assumes, incorrectly in Aurelius’s view, that even in this event Syn Loan I would retain liens granted in 2012 on collateral worth €47 million. Aurelius believes that all of the Syn Loan I liens should be invalidated, and that there is no reason to assume that Syn Loan I would retain €47 million of collateral if its liens are otherwise invalidated.

The IVG companies have not publicly released the EPM as a dynamic spreadsheet (e.g., as an Excel file) that would allow a creditor to modify the EPM and see the corresponding effects on creditor recoveries. In the absence of a dynamic version of the EPM, Aurelius has estimated the effects of making the two corrections identified in this release, as follows:3

     

Syn Loan I
Recoveries

   

Convertible Bond
Recoveries

EPM Uncorrected     46% - 55%     27% - 41%
EPM Corrected     39% - 52%     45% - 73%

The foregoing is not intended to be comprehensive, nor is it intended to endorse the EPM in any way. The purpose of this release is solely to identify two of the errors Aurelius believes to exist in the EPM and to estimate how the EPM’s recovery ranges would be affected if only those two errors were corrected. Aurelius has found what it believes are other errors in the EPM, has questions that may ultimately identify additional errors, and may develop new insights concerning the EPM with the benefit of additional analysis.

Aurelius has used this release to share its concerns with its fellow creditors and the IVG companies. For any company’s financial difficulties to be resolved consensually, the parties must thoughtfully and respectfully air their disagreements with each other, and then act commercially in resolving them. Aurelius hopes that all parties will bring these attributes to the table for the benefit of the IVG companies’ future.

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1 See: http://www.ivg.de/fileadmin/internet/daten/redakteur/dokumente/2013/finanzierungsstrategie/EPM_Summary_12_July_2013.pdf.

2 Although unclear, the EPM may also have disregarded another, smaller loan from IVG Finance to IVG Parent, which is disclosed in IVG Finance’s 2011 financial statements.
3 The corrected recovery estimates count IVG Finance’s claim at €406 million, which is the principal amount of €400 million as shown in IVG Finance’s 2011 financial statements, plus Aurelius’s estimate of accrued but unpaid interest thereon at December 31, 2012, the calculation date used in the EPM. (Aurelius believes that claim is approximately €402 million today.) These amounts do not include the claim referred to in footnote 2 to this release. The EPM states that IVG Finance’s claim against IVG Parent was €349 million at December 31, 2012. Aurelius cannot reconcile this number with the information available to it.

DISCLAIMER:

The views expressed herein are solely those of Aurelius, which does not purport to speak on behalf of any entity other than the funds it manages. Neither Aurelius nor its managed funds assume any fiduciary or other duty to the IVG companies or any of their creditors, stockholders or other interested parties.

The information contained herein reflects Aurelius’s opinions as of the date of this release and are subject to change. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. Nothing herein should be considered investment advice or a recommendation to buy or sell any specific security. Aurelius disclaims any duty to update any opinions, information or other statements contained herein.

This release does not constitute an offer to sell or the solicitation of an offer to buy any interests in any Aurelius fund. Such an offer or solicitation may only be made pursuant to definitive offering materials and subscription documents.

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