Centro's Fate In The Hands Of Distressed Debt Hedge Funds

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The convoluted saga of debt-laden Australian shopping-center owner Centro Properties Group has taken yet another twist: Most of the banks set to decide Centro's fate by December have been replaced by hedge funds and other opportunistic investors, Dow Jones Daily Bankruptcy Review reported. Gone are most of the lenders that originated Centro's roughly $5.5 billion in unsecured debt coming due at the end of this year, having sold their positions in recent months. Now in the catbird seat are a collection of hedge funds and private-equity firms led by Centerbridge Partners LP, Davidson Kempner Capital Management LLC andAppaloosa Management that bought Centro's debt at steep discounts. The turnover has far-reaching implications for Centro's continuing struggle to resolve its debt burden - $18.4 billion in all - before $5.5 billion of it comes due in 11 months. In what figures to be one of the largest real-estate workouts of this year, the company is assessing its options by reviewing preliminary buyout offers from suitors such as Blackstone Group LP. Australian bankruptcy, which mandates liquidation, remains a possibility. Centro, based in Melbourne, owns 600 shopping centers in the U.S., mostly strip centers anchored by grocery stores, and 112 centers in Australia and New Zealand. It was the first big commercial landlord to hit the wall in the downturn when, in late 2007, it couldn't refinance billions of dollars of maturing debt. The company's balance sheet is so riddled with cross-collateralized debt and syndications of ownership interests that even seasoned restructuring experts call it the most complex puzzle they have seen. Now, the arrival of the hedge funds as the new deciders of Centro's fate has further complicated matters. The hedge funds, with smaller outlays than the original lenders, might have more patience than their predecessors, which held the debt for several years and had pushed back the due date multiple times. "The new investors have come in with a new cost basis," Centro Chief Executive Officer Robert Tsenin said in an interview. "That, in their minds, opens up opportunities that were less likely as serious options previously." Some of the new debt holders view Centro as a lesser version of General Growth Properties Inc., the big U.S. mall owner that surged in value over the past year and exited from bankruptcy in November, rewarding investors like Brookfield Asset Management Inc. and William Ackman's Pershing Square Capital Management LP.To be sure, Centro's properties are smaller, less valuable and located in less affluent locations with lower paying tenants than General Growth's. Still, some of the hedge funds now betting on Centro see long-term value. "General Growth was like Tiffany [& Co.]; This is like Kay Jewelers," said one investor.