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Real estate firm Avison Young nears restructure post default

Real estate services firm Avison Young (Canada) Inc. is on the brink of a major restructure aimed at cleaning up its balance sheet following a default on a senior term loan. The Toronto-based company faced a downgrade in its ratings after missing principal and interest payments in the third and fourth quarters of 2023, as disclosed by S&P Global Ratings in a statement on Friday. The downgrade, labeled as "SD" for selective default, was anticipated, according to Avison Canada spokeswoman Andrea Zviedris.

In an interview with Bloomberg on Saturday, Avison Young's CEO, Mark Rose, shared insights into the impending changes. Rose expressed the company's commitment to eliminating more than 50% of its obligations through the restructuring process. Additionally, the board will undergo changes with the removal of non-independent directors.

The restructuring announcement is expected to be made as early as Monday, with the company already briefing ratings agencies on its plans. S&P's prompt disclosure was triggered by this communication, though a comprehensive overview of Avison's position wasn't provided at that time, clarified Rose.

Despite the default, Rose characterized it as "purely technical," rooted in a pre-agreed non-repayment aspect as part of the impending revamp. He emphasized that all investors and creditors have backed the proposed plan, which involves infusion of new funds from existing backers. Avison's almost 700 partners will maintain a majority ownership, and the Caisse de Depot et Placement du Quebec will continue its investment, with a minimal portion of debt set to be converted into equity. Rose optimistically foresees a positive re-rating shortly after agencies scrutinize the new structure, which could be unveiled to the public within the next two weeks.

Avison Young competes with industry giants like CBRE Group Inc., offering a spectrum of services in the commercial real estate sector, including sales, property management, and leasing. The company has faced challenges as the commercial property market navigates one of its most severe downturns in recent history.

In September, S&P had downgraded Avison Canada's rating to CCC with a negative outlook, citing the need for additional cash sources. The company experienced around $23 million in net cash outflows from operating activities in the first half of the previous year, excluding cash interest payments. Factors contributing to this included reduced capital markets and leasing revenue, as highlighted by S&P at the time.

As Avison Young moves towards restructuring, industry observers await the details of the plan and anticipate its impact on the company's trajectory in the competitive real estate sector.