Jilted bondholders offer 'Marriott risk...

COMMERCIAL REAL ESTATE

August 11, 1993|By Timothy J. MULLANEY | Timothy J. MULLANEY,Staff Writer

Jilted bondholders offer 'Marriott risk' antidote

Bondholders still upset by Marriott Corp.'s restructuring plan took their case to the American Bar Association this week.

Attorneys for PPM America Inc. proposed in a paper delivered Monday that the ABA adopt a model covenant for future bond issues that avoids what they call "Marriott risk" -- the risk of a restructuring that shifts value to stockholders from bondholders. Marriott plans to split into two companies, loading most of its $3 billion in debt onto a weaker, real estate-laden company.

The model covenant would make companies that want to borrow money by issuing bonds promise not to pay stock dividends, to use company assets to raise money to buy back stock, or to set aside major cash reserves for stock buybacks if the deal "directly or indirectly involves" bondholders -- in other words, if they stand to lose money.

PPM America claims the proposed split of the Bethesda lodging giant into Marriott International Inc. and Host Marriott Corp. does exactly what the model covenant would prohibit.

The value of the company's newest bonds dropped 30 percent when the split was proposed last October, though the bonds now trade for about what they did when Marriott issued them in

April 1992. Meanwhile, Marriott stock has soared, which the company has acknowledged was the goal of the deal.

Nellis continues quest for retail real estate

The quiet quest of Rockville-based Nellis Corp. to make a name on the Maryland retail real estate scene continued last week as the company bought Germantown Square Shopping Center in Germantown from South Charles Realty Corp. for $7.45 million.

The company now owns seven Maryland retail centers and 11 in the Washington-Baltimore area overall; four of the Maryland centers were purchased in the past 20 months.

"We have been actively looking at real estate deals for the last 10 years, but we're finding that the economics make a lot more sense in the last 20 months than they had previously," said Mark A. Levitt, a principal in Nellis. "We think it's a good market to be a buyer. There are a lot more sellers currently than buyers."

Three of the four recent Maryland deals -- Germantown Square, Festival at Muddy Branch in Gaithersburg, and Annapolis Fashion Festival (since renamed Jenifer Square) -- were bought from lenders, Mr. Levitt said. The fourth was in Landover Hills.

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