Adler Faces Down Hedge Funds in Bid to Avert Collapse

Welcome to The Brink, where Bloomberg’s reporters bring you all the latest on the world of distressed debt, bankruptcies and corporate blowups as well as the businesses that dodged collapse. I’m Lucca De Paoli, a reporter in London, where a court battle between German landlord Adler and some big-name hedge funds just started. We also have the latest on investor white lists, Vietnam's Novaland and the bankruptcy of a Covid testing company. Follow this link to subscribe. Send us feedback and tips at [email protected] or Tweet/DM to @ManySundays

Hedge Funds Take on a Real Estate Heavyweight

It was the poster child for the unstoppable rise of the German real estate market, fueled by cheap debt and confidence in ever-growing property prices. It’s now becoming a by-word for the sector’s problems, and there’s no end in sight. 

Adler Group had been pursuing a complex restructuring arrangement to put an end to a 16-month struggle triggered by a damning short-seller report, rising interest rates and a market correction. But some of its creditors are now pushing back, threatening to turn the process into a bitter court fight between the UK and Germany and, eventually, “to kill” the company, as Adler’s lawyer David Allison said in a London court on Friday. 

Until 2012, the company was the sleepy real estate arm of a former manufacturer. Cevdet Caner, an Austrian entrepreneur whose Level One went out of business in 2009, helped turn it into a deal machine that amassed a vast real estate empire across Germany. The secret sauce was bond investors. Adler was one of the first companies in Europe to introduce real estate high yield bonds, amassing almost €9 billion of debt. Many companies in Germany and abroad copied the approach, and some have already hit the wall.

CorestateAggregateAccentro, three other German firms linked to Adler, have restructured or are in the process of overhauling their debts. Home Reit have been targeted by short sellers.

Fighting Adler in court is a battery of experienced funds: Attestor. They’re claiming the restructuring is unfair and are trying to stop it by asking for more time. A luxury the company doesn’t have.

The firm needs new loans that have been promised by some other creditors and must find a new auditor to review its 2022 and 2023 accounts. KPMG resigned last year after refusing to give an opinion on the 2021 full—year figures, and the company hasn’t been able to find a replacement. 

To make things worse, one of the funds is starting court proceedings against Adler in Frankfurt. That case may question whether Adler rushed to create a UK entity to take advantage of English law, which allows the cramming down of dissenting creditors more easily than in Germany. 

High Alert

• US used-car retailer missed its earnings estimates, recording a $7.61-a-share loss, more than triple what analysts expected. The company, which has one of the biggest piles of distressed debt in the world, may require an aggressive debt restructuring as it faces rising interest payments in the next three months, according to Bloomberg Intelligence analysts
• Bed Bath & Beyond said it will pay past-due interest to bondholders next week. The company is catching up with debt obligations after clinching an eleventh-hour deal for a capital increase earlier this month. 
• South Africa’s state-owned utility will receive 254 billion rand in debt relief from the government to cover all interest payments for the next three years, freeing up resources to invest in the network and plants. The help is conditional on bringing in private partners to operate plants and electricity transmission network. 
• As remote work, rising interest rates and plunging property values strain office buildings around the globe, a landlord controlled by Pacific Investment Management Co. has defaulted on about $1.7 billion of mortgage notes on seven buildings in San Francisco, New York, Boston and Jersey City, New Jersey. Funds managed by Pimco acquired the owner of the buildings, Columbia Property Trust, for $3.9 billion in 2021. Monthly payments on the floating-rate mortgage debt rose as interest rates soared last year.

By the Numbers 

When loans of Australian health provider GenesisCare started dropping into distressed territory last summer, opportunistic funds found their path to buying them barred,Irene Garcia Perez and Giulia Morpurgo report-backed company has a white list in place. It means it allows its loans to be sold to a select group of buyers. White lists, designed to keep distressed debt funds at bay, are becoming more and more restrictive. That’s having second-hand effects: by restricting the number of potential buyers, it’s making debt trading harder, potentially keeping investors who are looking for a way out stuck with a deteriorating instrument. GenesisCare’s debt in euros is now trading at 30% of face value. 

Notes From the Brink 

The Covid-19 pandemic killed millions of people and disrupted businesses. For a small group of companies in the healthcare industry it was an opportunity: the Italian owner of swab maker Copan Diagnostics, Stefania Triva, was minted a billionaire last year. Many entrepreneurs leaned hard into the Covid bonanza, with venture capital money sloshing around and new startups sprouting up.

But fortunes can turn quickly: Lucira HealthCalifornia-based maker of “lab-quality” test kits filed for bankruptcy on WednesdayAmelia Pollard reports. Demand for its swabs had rocketed the firm to an IPO in 2021, with a 10% stake held by VC firm Eclipse Ventures, but the firm wasn’t able to pivot fast enough away from Covid testing. It has $85 million of liabilities and it’s now seeking to sell itself in Chapter 11. 

Lucira’s fate could be a harbinger of more distress to come for firms that bet everything on the pandemic. Well-established lab testing companies “probably made a gazillion dollars during Covid, and now they can just go back to their core businesses,” according to Stuart Komrower, an attorney with Cole Schotz who advised a lender to Lucira. “But the less diversified one-product or one-test outfits in the lab space are going to get hurt.”

Emerging Troubles

After the real estate crises that swept China and Korea, concerns are growing for the property sector in Mai Ngoc Chau and Nguyen Dieu Tu Uyen reportNovaland, the country’s second-largest developer, said it’s late with its bond payments.

It’s now seeking to settle payments, while asking some investors to extend maturities or to accept real estate assets instead. Many of the 54 Vietnamese companies which were late with debt repayments at the end of January are real estate firms, according to the Hanoi Stock Exchange.

The crisis was triggered by a government anti-graft campaign aimed at reining in corporate bond issuance following allegations of illegal activity.

Read more: Bureaucrats in Fear of Arrests Stifle Vietnam’s Economy 

“We believe this is just the beginning, and expect more debt extensions, restructurings and defaults,” said Xavier Jean, an analyst at S&P Global Ratings. “We are also watching for contagion effect” that could spill over to companies beyond the construction sector, he said. 

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