Thursday, May 28, 2009

Grubb & Ellis Bifurcates

Grubb & Ellis (NYSE:GBE) issued a quarterly earnings release and announced that their credit arrangements have been modified. Grubb & Ellis is a real estate based venture. If you understand real estate you understand the role of credit. Cash is like blood. Unfortunately investors are not in a position to understand what is happening at Grubb & Ellis. If there was ever a caveat emptor moment for this company it has arrived right here right now.

The only information provided is this quote which does not inspire confidence.
β€œOn May 26, the company announced that it had renegotiated its senior secured credit facility. The credit agreement amendment, which was effective May 18, 2009, modifies the amount, terms and length of the facility. Under the new structure, the $67.3 million maximum aggregate credit facility includes a $29.3 million revolving line of credit and a $38 million term loan.

"The amendment reflects the realities of today's credit markets. At the same time, it is an important step in ensuring our future success and demonstrates a continued commitment by the company's lenders in Grubb & Ellis, our growth strategy and our ability to navigate through the difficult environment," said Richard W. Pehlke, executive vice president and chief financial officer.”

The press release the day before describing the credit amendment is also useless in describing terms and conditions. Here is the functional quote

"We are pleased that we have been able to amend our credit facility, particularly in the current environment, which we believe is an endorsement of the company's strength, resilience and growth strategy," said Gary H. Hunt, the company's interim chief executive officer.

The amendment, entered into on May 20, 2009 and effective as of May 18, 2009, modifies the amount, terms, length and certain other provisions of the facility, and imposes various conditions on the company. These conditions, as well as other material provisions of the amended credit facility, are described in the company's Annual Report on Form 10K that will be filed later in the day with the Securities and Exchange Commission. Under the new structure, the $67.3 million maximum aggregate credit facility includes a $29.3 million revolving line of credit and a $38million term loan.

The facility will remain in effect until March 31, 2010, and may be extended until January 5, 2011 under certain conditions, subject to early termination in certain circumstances.”

So if you go to the 10k and start reading pages 6 and 7 you will see that the company is struggling with a variety of defaults and breaches. The lenders are not happy but seem to be trying to financially engineer their way around problems. Hence renegotiated terms and conditions.

Iceberg straight ahead