Citi Warns on Debt of Firm Tangled With Adler Investor
Citigroup Inc. is warning bondholders of Vivion Investments that the property firm could get caught in the crisis that’s engulfed a rival company and its largest shareholder.
Vivion is seen struggling to receive payment from Adler Group SA’s investor Aggregate Holdings SA for the sale of the prestigious Kurfuerstendamm project in Berlin, Citi’s trading desk said in a note to clients on Tuesday. The bank recommended investors remain underweight Vivion bonds, which are trading at 96 cents on the euro.
Backed by the family of Israeli tycoon Amir Dayan, Vivion struggled during the first wave of the pandemic following a hotel buying spree and a tax probe into its owner. The sale of the Berlin project and fresh funds pushed bond prices higher over the summer.
A short-seller attack against Adler, however, is now preventing its largest shareholder from accessing the bond market and may impact Vivion’s balance sheet later this year because of the complex financing arrangement of the so-called Fuerst deal, according to Citi. Vivion’s bonds fell 0.8 cents on the euro on Tuesday in response to Citi’s note, and dropped another 1.8 cents by Wednesday’s close, Bloomberg data show. The firm’s bonds were among the worst performing euro-denominated bonds of the day.
“Given our view of Aggregate’s liquidity position we think it could be challenging for it to raise the necessary liquidity to repay the debt it owes to Vivion. As such, we think Aggregate could seek to renegotiate the terms of these instruments,” Citi’s analyst Karan Samtani wrote in the note.
As part of the 1 billion euros ($1.1 billion) financing deal completed in June 2021, Vivion still holds about 360 million euros in bonds secured against the project, it said in October. It also holds part of Aggregate’s 250 million euros of unsecured notes, according to Aggregate’s third-quarter financial result.
“Vivion does not have direct exposure to the buyer due to additional securities that were provided to Vivion which includes among others share pledges on the Furst SPV and first ranking mortgage over the disposed Berlin asset,” a company spokesperson said in an emailed statement to Bloomberg News. “The outstanding exposure to the bonds, taking into account all securities Vivion holds, is insignificant to Vivion’s total balance sheet.”
In October, Vivion sought to reassure lenders in recent months that Aggregate had partially repaid the secured financing. At least three interested parties have approached Vivion and made offers to buy Fuerst in recent months, Bloomberg previously reported.
The repayment hasn’t deterred short sellers from betting against the company. Around 20% of Vivion’s 700 million-euro bond is currently on loan to funds looking to profit if the price falls -- making it the most-shorted European junk bond, according to IHS Markit Ltd.
Hedge funds have been looking for more bonds to borrow and short recently, pushing the cost of the trade higher, according to Bassam Chekrane, senior product Specialist at Markit Securities Finance. “We are still observing high levels of utilization –- demand to supply ratio -- which suggest increased borrow demand for the bond, pushing the borrow cost up.”
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