Key creditors reject O&Y restructuring

CREDITORS of Olympia & York secured by two big Canadian office complexes have rejected the developer's dollars 7bn (pounds 4.6bn) restructuring plans, opting to seize the buildings rather than involve them in an increasingly likely liquidation of the parent of the huge property empire.

Lenders backed by O&Y's Toronto flagship, First Canadian Place, and by the Fifth Avenue complex in Calgary voted to reject the plan this week, while a dozen other groups secured by various Canadian properties have approved it. But another 19 creditor groups adjourned their meetings, deciding to wait until after a key vote by O&Y's big unsecured direct lenders, which was to have taken place yesterday but was postponed until 25 January.

But the unsecured creditors, which include Canada's largest banks as well as international lenders such as Hongkong & Shanghai Banking Corporation, Citicorp and Credit Lyonnais, are almost certain to reject the plan, which would have given O&Y five years to repay the debts, or a 90 per cent stake in the company to the creditors if it failed.

A rejection by the unsecured creditors would end the court protection O&Y has enjoyed since last May, and probably see a receiver named to liquidate the assets of the parent company. O&Y's Canary Wharf development in London Docklands has been in the hands of administrators since last spring. Its large US subsidiary, while not formally in bankruptcy proceedings, has suspended most debt payments and is negotiating with its lenders.

With the withdrawal of a number of key properties from O&Y's control, the unsecured creditors are worried about the group's ability to return to profitability, even with a recovery in North American property prices. They are also concerned about the potential tax implications of the restructuring plan, which could be interpreted as, in effect, giving the banks control of O&Y.

If a change of ownership in effect takes place, O&Y and its creditors stand to lose almost dollars 1bn of tax credits for operating losses in 1991, analysts said.

'If there was a belief this plan would result in a change of ownership, people would rather take their chances with a liquidation,' one creditor said.