Avison Young said it is nearing the completion of its restructuring efforts and, in a sign of confidence in the firm, “100% of financial stakeholders” will remain investors even after S&P Global Ratings downgraded the Toronto-based real estate firm following a default on a senior term loan.

Avison Young missed principal and interest payments in the third and fourth quarters of 2023, said the ratings agency, which downgraded the firm to SD, for selective default.

“S&P’s downgrading was fully expected and is typical in capital restructuring transactions,” a spokesperson emailed Connect Money over the weekend. “We are at the finish line of this process and anticipate that the ratings agencies will review our post-transaction debt structure and issue a new, improved rating in the coming weeks.” Connect Money is the sister publication of Connect CRE and Connect CRE Canada.

The firm has collaborated with its partners and lenders over the past year to restructure the business and negotiate a deal that would improve its capital structure. It was planning to announce the restructuring as soon as today and informed S&P of its preparations. At that time, the ratings agency stated that it was required to notify the market immediately, CEO Mark Rose told Connect Money.

“S&P is sitting with both public information and non-public information and they can’t release the non-public information, which is that we’re going to announce the restructuring on Monday,” explained Rose.

The firm’s partners will continue to own most of the company, with Caisse de Depot et Placement du Quebec (CDPQ) remaining an investor and a portion of debt converted to equity.

“S&P was between a rock and a hard place because 100% of all financial stakeholders who were in are still in,” said Rose. “We did not miss any interest payments. We had an agreement [with the lenders] for months that we have been paying interest. It’s getting factored into a new transaction.”

The default was “technical in nature,” added Rose. “Are you telling us [S&P] that you didn’t make your interest payment? No, we’re telling you we didn’t need to make an interest payment.” Following the restructuring announcement, Rose anticipates the ratings agency “will have to come in and rerate” the company and “take it back up.”

“I think with the rerating you’ll get more of the details out of S&P and Moody’s in about two weeks.”

“They [S&P] got the information at the last minute, and the people who approved this deal are standing by the company, they’re putting in new money into the company and they’re eliminating more than half of the obligations that we had.”

“Our preferred equity instrument is also going to be reduced by significantly more than half at reduced rates,” said Rose. “And these debt obligations just go away and the preferred equity that did exist, which acted like debt has been converted into a perpetual preferred investment.”

“This isn’t a bad story [with regards to the downgrade]. This is an amazing story of a company that took care of its issues long before,” concluded Rose.

Throughout the new capital restructuring efforts, Avison Young has remained active in the acquisitions space. Earlier this year, it acquired Washington, D.C.-based Madison Marquette’s retail property management, retail marketing, retail leasing and specialty leasing services across the U.S. In 2022, the firm purchased Madison Marquette’s office and industrial property management, agency leasing and project management service lines.

In 2021, the firm acquired NJ-based Studio Eagle, a workplace design firm, and NY-based Singer & Bassuk to expand its debt and equity finance services platform. It also purchased Boston-based Dowling Houy, expanding its life sciences expertise and growth of project management platform.

Pictured: Mark Rose, CEO Avison Young

Connect Money is the sister publication of Connect CRE and Connect CRE Canada.