Developer files for bankruptcy Olympia & York's filing would be Canada's largest.

May 15, 1992|By Richard D. Hylton | Richard D. Hylton,New York Times News Service

Olympia & York Developments Ltd., the world's largest real estate development company, whose office towers have altered skylines in New York, London and throughout Canada, filed for the equivalent of bankruptcy protection in a Toronto court last night after three months of negotiations with lenders collapsed, bankers and other people close to the company said.

Olympia & York would be the biggest company ever to file for bankruptcy protection in Canada. Analysts and bankers have long expressed a fear that if the company was forced to file for bankruptcy, the world's financial and property markets would be roiled.

The entire Olympia & York empire, which is owned by the Reichmann family of Toronto, has debts in excess of $18.5 billion and has been trying to restructure about $12 billion of debt.

The company sought relief for at least 29 Canadian companies, some of which have assets in the United States. Most of the companies were put under the Company Creditors Arrangement Act in a hearing last night. Some companies with assets in the United States also sought protection under Chapter 11 of the federal Bankruptcy Codes for their U.S. subsidiaries.

In the short term, this desperate move by the huge property company will not have an immediate impact on most of the nearly 23 million square feet of office space the company owns in New York City.

But Olympia & York's position remains extremely tenuous, and it is not known whether yesterday's move will undermine the company's efforts to keep the remainder of its sprawling empire out of the courts.

Several people involved in the company's complex bank negotiations said the decision to file for bankruptcy came after a seemingly endless series of crises that has plagued the company since it ran out of cash in early March.

The company has defaulted on a staggering series of obligations in Canada, the United States and Britain. It has failed to repay hundreds of millions of dollars of debt that has come due in the last 2 1/2 months.

Bankers and others said those crises have largely prevented Olympia & York from negotiating an overall plan for saving and restructuring its assets because it was continually putting out small brush fires.

In the latest blow, a British appeals court ruled against the company yesterday and instructed it to pay $240 million to a subsidiary of the investment bank Morgan Stanley & Co. within seven days.

Bankers and others involved in the global restructuring of Olympia & York said a decision on the future of Canary Wharf, the enormous 71-acre office development in London's derelict docks area, had yet to be made.

The development, which has largely been blamed for overextending the company's resources, has cost more than $3 billion and is not complete.

Canary Wharf faces enormous obstacles, including the financing for the more than $4 billion needed to build it as planned, and whether a crucial subway line to connect it to London's traditional business districts will be completed.

In the last month, Olympia & York had been negotiating with its bank lenders in an effort to wring concessions on its $12 billion in debt. But the bankers gave a cool reaction to an Olympia proposal that would have given the bankers a stake in the company in exchange for an easing of its interest and debt payments.

The Reichmanns' strategy was to persuade the banks that there was still billions of dollars of excess value in Olympia & York's worldwide holdings, even after roughly $15.5 billion of real estate debt was taken into account.

The banks, on the other hand, were concerned first with trying to understand the complex capital structure of the company and then with determining how safe their loans were. That focused attention on the company's appraisal of its real estate portfolio.

"There are a couple of Canadian O&Y companies that for technical reasons need to file," an unidentified source told the Associated Press. "But it's not Olympia & York USA or any of its subsidiaries."

A spokeswoman for Hongkong & Shanghai Banking Corp., who didn't identify herself, said the bank was aware that Olympia & York "filed for insolvency, but we can't say more than that."

The Associated Press contributed to this article.

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