Examinership a bitter pill for landlords
Cantillon:You don’t have to look too hard to see the parallels between the BQ examinership and the one through which Atlantic Homecare went last year.The first, and most obvious, is that they are both in the same business, DIY, which is a branch of retailing and is consequently suffering the ill effects of what is turning into a never-ending recession.
The second doesn’t take long to become obvious either. BQ’s parent, Kingfisher, is a substantial creditor, as was Atlantic’s owner, Grafton Group.
This brings us neatly to the third: Kingfisher is willing to support BQ through the examinership and invest once the examiner, Declan MacDonald, can get a rescue plan over the line. Similarly , Grafton backed Atlantic while it went through the same process last year.
Atlantic emerged successfully from court protection and examinership, and the deal involved Grafton taking a haircut on its debt, along with a number of other creditors.
It would be dangerous to predict that BQ will also emerge from the process and that Kingfisher will have to take some sort of a hit on the €17 million it is due from its subsidiary. However, it would not be a shock if this were to happen. A rescue plan, if one gets High Court approval, is likely to involve all creditors, including the parent, taking some pain.
Rent is easily the fourth parallel. Atlantic’s oversized, pre-recession leases were a millstone on its business. BQ is paying €11.6 million a year on nine stores, €5.8 million over the going rate.
Examinership is one way out of the situation. This is clearly one of the issues that BQ – and presumably Kingfisher – want to tackle in the process. The company’s lawyers highlighted the problem in the High Court, and the level of rent attracted comment from the bench.
Atlantic’s landlords took a €5 million a year reduction in their rent, but some of them got to keep their tenant. The group proposed closing five stores when it entered examinership, but ultimately shut just two. Presumably it kept the other three because landlords were suddenly willing to talk. It might be pushing it to suggest that examinership is the now ultimate bargaining chip with stubborn landlords, but you could be forgiven for thinking it. If it is, then it’s time to find some other way of tipping the balance in tenants’ favour.
Thinking the unthinkable on arrears
If the idea of yesterday’s conference on how to fix distressed property markets was to shake up thinking on these shores, it must be scored a success.
At the outset, the governor of the Central Bank, Patrick Honohan (above), gave an address in which he referred to the unprecedented level of mortgage arrears, and distress, in the State. He went on to refer to the code the bank introduced some years ago, to prevent people who were in trouble with their mortgages being treated aggressively by their banks, and the view of the Central Bank that the Irish banks are behind the curve in addressing the problem.
He was quickly followed by speakers from the US who drew attention to the apparent correlation between the rapid processing of defaulting loans and the associated rapid foreclosures, or repossessions, by US banks, in some states, and the recovery of the property markets in those states when compared with states where the foreclosure process was less prompt.
In other words, the Irish were getting it all wrong.