THE legal and accounting bill for Olympia & York's attempted restructuring will run to $40 million dollars this year. That's just for the Canadian part of the reorganization of debt by the hard-pressed property developer.
The company had already moved to reduce its restructuring costs by dismissing its financial advisers, Burns Fry Ltd. of Toronto and J. P. Morgan & Co. of New York.
Olympia & York Developments Ltd. is the property giant that is developing Canary Wharf, the massive office complex in the East End of London. The Toronto-based company is being hounded by creditors in Canada, the United States, and Britain, and has sought bankruptcy protection in each jurisdiction.
In Canada, it has been first things first for the past few weeks. The lawyers and accountants wanted to make sure they would be paid. Late in June the judge in the case lost patience and told the lawyers to settle their disputes quickly. They did. With the haggling over fees settled, the lawyers and accountants could move on to the real work: trying either to save O&Y or, should that fail, to divide assets among creditors. Deal holds creditors at bay for now
Olympia & York reached an agreement with its Canadian lenders in a Toronto court late last week that will hold its creditors at bay, split administrative and financing costs, and allow the company a free hand to work on restructuring without further court delays. Among other things, the company will sell up to $70 million of assets on which there are no previous liens to pay for the reorganization.
The agreement was reached after a week of bargaining between company lawyers and creditors. It details how Olympia & York will pay its expenses from May 14, when O&Y and 28 Canadian subsidiaries first received court protection from Canadian creditors, until the end of August.
"It's a positive thing in that it allows the company to spend less time in court and more time moving forward with the restructuring," says company spokesman Frank Ternan. `We want to see a plan'
"The next important thing is we want to see a plan and we want to see one fast," says Michael Barrack, a lawyer whose clients own bonds secured by O&Y properties in Canada.
Olympia & York says it will try to present a debt-restructuring plan to creditors in a Toronto courtroom by July 13.
The debt restructuring is the largest ever undertaken in Canada, involving 90 creditors and $8.6 billion (Canadian; US$7.1 billion) in debt. O&Y's total debt is at least C$13.5 billion.
The agreement worked out between the lawyers details how O&Y will finance its administrative costs during the June to October period. Until now the legal and accounting fees as well as the daily cash needs of Olympia & York had been paid from rents collected on buildings the creditors had lent on. They wanted those revenues protected.
Under the terms agreed to in court, O&Y will finance the costs by selling C$70 million worth of debt-free assets. These include the corporate jet, a Grumman Gulfstream that one aircraft dealer in Montreal described as "a bargain" at the asking price.
Olympia & York, the world's largest private property owner and the largest private landlord in Manhattan and Toronto, first experienced cash flow problems earlier this year. In good times lenders had been anxious to do business with Olympia & York, owned privately by the Reichmann family, which seemed to have the magic touch when it came to property deals. But the recession and rising vacancy rates in their buildings created a cash crisis.
And the company has sprung another leak, this time in San Francisco. Last week Olympia & York said it abandoned its participation in a 40-story building in San Francisco after an American subsidiary missed a US$2 million debt payment. O&Y said it has invested US$20 million to buy land for the project.