We expect to settle the German debt for an amount that is less than the carrying amount on our consolidated balance sheet of $190 million, which was recorded at fair value on September 1, 2008 in connection with the consolidation of the venture, as the debt is only partially recourse to us. Any difference between the recorded amount of the debt and the amount ultimately paid to the lenders to settle the debt will be recorded as gain on the extinguishment of debt at the date the debt is legally satisfied. The face amount of the debt at June 30, 2009 is $253.5 million.
The German assets held for sale at June 30, 2009 is approx $93M:
So, if they sell it for $X, then, the portion that SRZ needs to make up is:
(253 - X) * 190 / 253
so if X=$50M -> SRZ stuck with $150M to pay if X=$100M -> SRZ is stock with $114M
the paper profit they record is difference between $190M and what ever they are stuck with
At the end of the third quarter of 2008 we reported we had purchased an option to acquire the remaining stake in our German venture and that we intended to exercise that option. Accordingly we are consolidating those communities. Prior to that purchase our minority ownership position left us with no control over the portfolio but exposed us to all of the financial risk associated with the portfolio. When we consolidate these communities into our financial results the account results require that assets and liabilities of the German venture be consolidated at estimated current fair value.
Because our liabilities in the German venture exceeded our assets we recorded a non-cash extraordinary pre-tax loss for 2008 of $22 million.
As we announced in the first quarter, we hired a broker to market and sell all nine of our German communities. We have begun receiving bids. The cash from these sales will go directly to the lender of our German communities. We are also working to secure additional liquidity to satisfy the remaining German debt.
Included in the loss from discontinued operations of $46.9 million for the three months ended June 30, 2009, is an operating loss of approximately $8 million from our nine German communities, and an impairment loss relating to the nine German communities of $52.4 million. As the communities are now considered held for sale, the results from the communities for the current and prior periods are included in discontinued operations. The fair value of the assets based on the average bid, price of initial bids received was less than the recorded book value and we accorded a charge of $52.4 million.
We expect to settle the German debt for an amount that is less than the recorded amount of 190 million as the debt is only partially recourse to us. Any difference between the recorded amount and the amount ultimately paid to the lenders to settle the debt will be recorded as gain on the extinguishment of debt on the date it is legally satisfied.