After extension of debt repayment, Greenland Holdings, parent of Atlantic Yards/Pacific Park main developer, downgraded (by S&P) to Selective Default

Three weeks ago, I wrote that Greenland Holdings Corp. (aka Greenland Holding), the Shanghai-based conglomerate that owns Greenland USA, had seen its stock price halved in two years and its credit rating plummet.

(Greenland USA owns nearly all of Greenland Forest City Partners, which owns/has funding responsibility for Atlantic Yards/Pacific Park going forward, though the joint venture has sold off properties.)

So that led to two, multi-notch downgrades in a week from the two main credit rating agencies, Moody's and Standard & Poor's, with S&P--though not Moody's--placing Greenland on the edge of default.

New downgrade

Now S&P, in a 6/21/22 announcement, Greenland Holding Downgraded to 'SD' On Completion of Distressed Maturity Extension, said it viewed the company's one-year extension of payment for nearly $500 million in notes (originally due June 25) "as a distressed debt restructuring tantamount to a default."

That, however, is not quite the same thing as a default, which could stall the project in Brooklyn--see below.

Without that transaction, S&P said, "[w]e see the risk of nonpayment." So it lowered its long-term issuer credit rating on Greenland from CC (extremely speculative) to SD, or Selective Default. That relates to specific bonds, not the company's overall obligations.

S&P stated:

We view the transaction as a distressed debt restructuring and tantamount to a default. Had the notes not been extended, Greenland likely would have lacked the resources and funding options to fully repay them upon maturity. The company still faces a significant amount of offshore debt maturities over the next 12 months, totaling about US$2.4 billion...

We will reassess Greenland's credit profile as soon as practicable after we have more post-transaction information to analyze the company's financial and liquidity position.

Here's coverage by Dow Jones Newswires and Bloomberg, which called Greenland a "Chinese state-linked developer long considered among the nation’s most resilient." (Note: Moody's, the other main credit ratings agency, has not yet weighed in.)

A chart with the Bloomberg article showed that the bonds due this week now trade on the market at less than 40 cents on the dollar, though that's a slight uptake from 30 cents, where they'd plunged in late May.

Implications in Brooklyn still murky

As I wrote 6/10/22 (and later updated it), a potential reading of governing Atlantic Yards Master Development Agreement (MDA), as Atlantic Yards Community Development Corporation Director Gib Veconi pointed out, indicates that a default by the parent company could stall the project.

The Development Agreement states that an Event of Default occurs if the developer or Guarantor seeks formal relief as debtor or is adjudicated as bankrupt--and that proceeding is not vacated, discharged, or stayed within 90 days. 

So extending the maturity, however much a red flag, likely is not yet such an Event of Default. Nor is there a Foreclosure Event involving the transfer of title of any portion of the site.

"Can you comment," Veconi asked, "on the effect of default of your parent company on your company, Greenland USA, and what impact that would have on Greenland Forest City Partners as developer of this project?" 

"It's not going to change anything," responded Greenland USA Executive VP Scott Solish. "So we're continuing to do exactly what we've done, which is continue to invest substantial amounts in the project and continue to execute as we've had since we came into the project in 2014."

After re-reading that document, I don't think that Greenland USA could be shielded from the troubles of its parent; the two entities would seem to have a similar structural relationship as did initial Guarantor Forest City Enterprises and its New York subsidiary, Forest City Ratner, and its related entities.

But, by my reading--and I'm not an expert on such documents--they're not at the stage to assess that.

A loophole to avoid enforcement

Crucially, however, it's unclear whether Empire State Development (ESD), the state authority that oversees/shepherds the project, would even enforce the agreement. As I wrote regarding the affordable housing obligation, the Development Agreement offers a huge loophole, a "Right To Refrain" from exercising any of its rights.

As I wrote, those rights are not merely the rights of the state authority (formerly known as ESDC), but represent obligations to the public.