Avison Young announced that it has agreed to a comprehensive deleveraging transaction with its financial partners that positions the company for continued growth.

Toronto-based Avison Young said the deal reduces the full-service commercial real estate company’s debt by more than half and provides additional capital to advance strategic goals.

“This transaction is an incredibly exciting step forward and positions Avison Young with the financial flexibility to invest in growth and continue to deliver for our clients,” said CEO Mark Rose in a news release.

Avison Young said the deal preserves the company’s culture as a principal-led and owned firm, with principals and management retaining a significant ownership stake.

The company entered into a consensual agreement with a group that represents substantially all of the firm’s existing lenders and capital partners. The transaction is expected to close in March.

Avison Young began the debt restructuring process began 15 months ago when the company anticipated that forthcoming high central-bank interest rates would affect commercial real estate, Rose told reporters from Connect CRE Canada, Connect CRE (U.S.) and Connect Money.

Rose did not mince words when asked where Avison Young would have been if it did not start the debt-restructuring effort early.

“We would have been in trouble,” he said.

S&P Global downgraded its issuer ratings on Avison Young and its senior secured term loan Friday. The ratings agency said it made the downgrade after Avison Young missed the third- and fourth-quarter 2023 principal and interest payments on its senior secured term loan.

But Avison Young said that, based on an agreement with its lenders, the company did not miss any required payments.

“We’ve kept paying the revolver,” said Rose, referring to Avison Young’s revolving credit facility. “But as part of a complete workout in restructuring, we had had an agreement with our lenders for months [whereby] we haven’t been paying interest. It’s all getting factored into a new transaction.”

Rose said the company provided S&P with public and private information, but the ratings agency issued the downgrade due to its internal reporting requirements.

“We view these missed payments as a default under our criteria, given that the lenders did not receive the value they were initially promised in a timely manner,” said S&P in its notice on the downgrade.

S&P noted that Avison Young remains current on its revolving credit facility debt-service obligations.

All investors remain on board with Avison Young, and the management team will remain in place with no dismissals occurring. But the Caisse de dépôt et placement du Québec (CDPQ) will have a much smaller stake in the company, said Rose.

CDPQ purchased a $250-million equity stake in Avison Young in 2018 to further the company’s aggressive global expansion program. As part of the agreement, two CDPQ representatives were placed on Avison Young’s board.

“They’re not going to have seats on the board [anymore] but they are still in the deal and still voting for it [and] still committed to it,” said Rose. “They’re just going to have much less of everything.”

Investors are putting in “new money” and reducing and eliminating more than half of Avison Young’s debt obligations.

“Not trading – eliminating,” said Rose.

“That [debt] is going to be lower, at interest rates that are lower. And, our preferred-equity instrument that we had is also going to be reduced by significantly more than half at reduced rates. These debt obligations just go away. And, the [preferred-equity instrument] has been converted into a perpetual preferred investment, therefore turning that into equity.”’

Avison Young’s current interest-rate payment is much lower than at the outset of 2023, he added.

“You cannot negotiate like this if people don’t believe in your management team, your strategy, where you’re going, what you’ve done,” said Rose.

“They stood behind us.”

Avison Young expects its ratings agencies to review its post-transaction debt structure and issue new ratings that reflect the company’s stronger financial position.

Rose anticipates that many other real estate companies will be vulnerable to takeovers due to large debt loads tied to high interest rates.

“The reason you do this is to get ready,” said Rose. “I think it’s going to be prime hunting season right now.”

He said Avison Young will continue to explore acquisition opportunities and recruit top talent.

Pictured: Mark Rose, Avison Young CEO

Photo: Avison Young