Closing arguments were heard on Wednesday in a legal case brought by an ad hoc group of bondholders who oppose the proposed restructuring plan of Germany’s Adler Group.
The ad hoc group of bondholders fear they will miss out financially under a liquidation plan. One line of argument is that they will be disadvantaged by being temporarily subordinated to others since they have a maturity date in 2029 and will fall to be paid last in line.
In a skeleton submission to the UK High Court, the ad hoc group’s lawyers said: ‘Given the terms of the proposed Plan Liquidation, the ad hoc group would in their view be better off with a Formal Liquidation in which their normal rights are respected, where they would rank equally alongside the other SUNs and where they are not subordinated in this way.’
‘They strongly believe that they would do much better in such a Formal Liquidation, something which is not surprising given the sheer extent of the subordination to which they would be subject under the Plan.’
‘They also strongly believe that the way in which it is proposed that different Plan Creditors are to be treated differently under the Plan is unfair and unjustified in circumstances where all those creditors would rank pari passu in the relevant alternative of the Formal Liquidation.’
Lawyers for the ad hoc group also asserted in skeleton arguments that they had been given scant time to put together their case and feared a tactic was afoot to deluge the court with paperwork as a tactic by the parent company to push through its plan.
Matters have reached court following a chaotic time for Adler.
As previously reported, the group got into grave difficulties linked to short seller Fraser Perring and amid allegations by Viceroy Research of wrongdoing by Adler. Viceroy has previously claimed Adler’s balance sheet had been artificially inflated to a significant degree, and its shares were un-investible – both allegations Adler denied.
The parent company, Adler Real Estate and fellow German real estate company, Consus, operate in Germany, and own or manage around 26,000 residential rental units and around 3,200 units in developments.
The yielding portfolio is primarily owned by the parent company and Adler Real Estate while the development portfolio is mainly held by Adler and Consus.
Adler also owns a 63% stake in German listed company, Brack Capital Properties, which is said to be held as an ‘asset for sale’. According to the lawyers, Adler tried and failed to sell the stake for €750 mln in Q2 2022.
Overall, Adler Group owns 616 properties in 36 German cities.
By September, the company had total liabilities of over €6 bn, of which €3.2 bn relate to super upside note holders.
Management plans a disposal of €2.8 bn of yielding assets and €1.7 bn of development assets by Q4 2024, the proceeds of which are meant to pay off debtors.
A remaining €2.6 bn of assets and €400 mln of developments is forecast to be sold by Q4 2026. The company is expected to file for insolvency in due course.
Lawyers for the ad hoc group said allied to the planned asset disposals is what is called ‘an organisational scale down’.
‘This appears to be a euphemism for the fact that most employees will be made redundant. It is said that this will reduce full time employee costs from €51 mln for 681 employees at present to a target of €12.9 mln for about 150 employees by Q4 2024. This is a 78% reduction in personnel over the next 18 months or so.’
According to public records, Vonovia owns 20.49% of the parent company, Gerda Cancer 6.1% and Günther Walcher, founder and majority owner of Germany’s Aggregate Holdings 6.1% with the remaining 65.97% being in the hands of free float shareholders.
In 2022, KKR bought a €1 bn portfolio from the group. The previous year, LEG Immobilien acquired a €1.5 bn portfolio.
