Lanesborough seeks to issue trust units for 5% debentures to avoid insolvency

By Wendy Van Sickle

Columbus, Ohio, Nov. 18 – Lanesborough Real Estate Investment Trust announced a proposed transaction to settle its C$24,810,800 of outstanding 5% series G redeemable subordinated debentures due June 30, 2022, and all unpaid interest, in exchange for trust units in the issuer’s capital, according to a news release.

The company said it plans to make a proposal to holders of the debentures to exchange the debentures for trust units at the lowest permitted price by the TSX Venture Exchange of C$0.05 per trust unit.

A special meeting of the debentures holders is set for Dec. 21. The record date is Nov. 19.

The issuer said its board of trustees has determined that the exchange transaction is in the best interests of Lanesborough as it will reduce its overall debt and interest burden, simplify its capital structure and improve its balance sheet.

The issuer is unable to obtain financing and/or refinancing and does not have the ability to repay the debentures. If they remain outstanding when they mature, management anticipates that the issuer will be forced into insolvency due to the inability to repay the debentures and the cross-defaults that would occur under the other debts.

In an insolvency scenario, the assets of the REIT would likely be required to be liquidated, which could result in its properties being sold at prices that may not be reflective of their fair market value, Lanesborough said.

If the REIT were forced into insolvency upon the maturity of the debentures, given the amount of debt of the REIT with security that ranks ahead of the debentures, management of the REIT believes the debentureholders would not receive any payment for their debentures, according to the release.

By converting the debentures and all outstanding interest into trust units, the debentureholders may have the opportunity to participate in a possible recovery of the REIT in the future.

“In the view of the management of the REIT, merely extending the maturity date of the debentures five years past June 30, 2022 will not be sufficient to allow the REIT a chance to recover from its financial difficulties as compounding interest continues to accumulate on the approximately C$275 million of existing debt which ranks in priority to the debentures. For the foreseeable future, all available cash flow will be required to service the senior indebtedness of the REIT,” the release states.

The company is a Winnipeg, Man.-based real estate investment trust that owns property across western Canada, in Ontario and in the Northwest Territories.

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