GKK may very well survive the next couple of years, but what about the $573 million they need for the mezzanine loan in 2011? How are they going to finance that?
The AFR aquisition is offsetting the loan loses, so far so good, but it wont offset the mezzanine load in just 2 years... GKK dont have any unemcubered assets either so the only way for them to pay of this loan is to issue more shares at a huge dillution to existing stock holders or go bankrupt. Selling existing buildings is not enought either because of low valuations that wont come back up in 2 years...
So all you wise guys in here what is the solution?
As a short term investor, sure, you dont have to worry about this, just keep making some % in the short term up and downs... Holding gkk for long periods of time has proven to be a bad strategy.
I would think you best bet is to look at the last two days. We had a low of $2.01 each day and that was with big sell offs. Yesterday I got in at the $2.01 price and add 3,000 more. If she goes back to that or lower (witch I doubt), I'll just keep adding more.
When she pops and takes off at least I loaded up before hand. Load up and put it away for a rain day.
To many here on this board say they sold off to take some kind of profit, but then they are the same ones that wish for the price to drop to some unreal number (under a $1 and so on..) so they can get back in again. All I can say on that is you had your chance to hold tight, and the few thousands you made are going to be peanut compared to what you could have made in a year or two.
One mans rowboat is another mans yatch!
Well, first and foremost you have to remember the mezzanine loans and associated Goldman mortgage are all secured by income producing property. Next, you have to remember, GKK created subsidiaries which own the properties associated with the loans. So, this leads to a couple of options:
1) They could default on the loans. Since loans are owned by subsidiaries, only subsidiaries would be affected. In essence, Goldman would have to foreclose on the properties securing the loans.
2) They could refinance the loans with Goldman. Assuming they are current on payments and the properties are leased, why wouldn't Goldman want to continue to receive market rate interest payments?
3) They could refinance with another lender. Large insurance companies like to make these kinds of loans.
4) They could place the loans inside their CDOs. There is precedent for this as they did it with an $85M Deutsche Bank loan. They have minimum $685M loan repayments coming over 2009-2010, and a whopping $564M in 2011.
5) At least some portion of the debt could just be paid with cash. This is most viable for the $100M junior mezzanine loan.
Personally, while it is the most difficult to execute, I hope they go for option 4. Once inside the CDOs, they could effectively buyback the debt at anywhere from $0.20-$0.60 on the dollar.
So, while we have no idea how they actually plan to handle the debt, we can see several options available.
Well they are cashflowing(net) to the tune of $30 Mill a quarter and they have two years to refinance that mezzanine loan. Two years of cash flow is $240 Million plus the $80 Million unrestricted they currently have is $320 Million. They also have $450 Million +/- in unencumbered loans assets that are Outside the CDOs. If they sold them at a discount for say $200 Million, that would be a $520 Million cash chest. Add to that they are selling buildings and paying down the mezz loan with proceeds, by about $20-30 Million a quarter. They would be able to pay off the mezz loan with cash.
However they will probably pay it down by $200-300 Million and refinance the remainder of it. JMHO
You mean aside from profit from operations once their loan loss reserves are finished going up? Profit from stable banks like BAC and Wachovia?
Personally my larger position is in GKK PRF, so I don't care if they issue more shares that much, but I don't think that is very likely. Besides, 2 years from now the economic situation will be VERY different...Plenty of time/chance for them to get ready for the GS loan due in 2011.