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Questions from a reader about Fortress financing for Olympic village

January 11th, 2009 · 15 Comments

Got this note from a reader, “Andrew,” with some interesting observations on the financing side of the Olympic village. More info to ponder.

After reading different articles over the past couple of days I phoned a friend of mine in who works at an executive level in Canadian Real Estate finance to ask him a couple of questions.

The first thing he told me was that as far as he understood Fortress has absolutely no legal standing to do what they are currently doing. In his opinion Fortress was taking this opportunity to put the screws to the City of Vancouver because (a) they (Fortress) was under such financial stress and was desperate for any opportunity they could get to refinance their current obligations under different terms and (b) Fortress knew that since the City of Vancouver couldn’t take the time to fight it out in court they would have no option but to negotiate because of the deadline associated with the Olympics.

The other thing he mentioned that I thought was most interesting was that as far as he knew (and he would know these things) Fortress had already syndicated $500MM of the $750MM dollar debt facility to a group of Canadian Banks. The way he understood things Fortress was only on the hook for the $250MM of the debt and he was under the understanding that the city had already provided a guarantee on a portion of that.

He figured that Fortress was trying to get the city to guarantee all of the debt that Fortress had not already syndicated to the Canadian Banks. That way they could write that debt obligation on their books up (or maybe not have to right it down).

One way or another he didn’t think Fortress was going to cough up any more money because he didn’t think they could afford to. He also thought Millenium was a poor choice as developer since they had never done anything that size before.

It seems that the city is in a tough position. They need to find another financing source which doesn’t exist in these current market conditions and then sue Fortress for damages but who knows if they will even be around to pay damages.

From my point of view the most interesting part of the whole conversation was the suggestion that a group of Canadian Banks was involved with the $750MM loan syndicate but that we haven’t heard their names mentioned at all.

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