When a company’s bond prices plummet to single-digit cents on the dollar in the secondary market, it tends to indicate a bankruptcy is imminent. In early 2009, residential real estate brokerage leader Realogy Corp.’s bond prices would have led many investors to that conclusion, a situation compounded by the fact that residential real estate—Realogy’s bread and butter—was falling off a cliff.
Two years later, however, the company, which had $4.1 billion in 2010 revenue and owns such brands as Coldwell Banker, Century 21 and ERA, persuaded its lenders to participate in a massive restructuring that extended maturities on most of its debt and prepped the company—and its stakeholders—for a housing market recovery. Realogy’s bonds are now trading at or above par.
Realogy currently pays $600 million a year in interest. That includes $55 million incurred by the restructuring, which Hull describes as “a modest increase in overall interest-expense costs” to push out maturities by three or more years.
Christopher Jacobs, a senior analyst at Western Asset Management and head of the big bond investor’s distressed and special situation investment effort, says exchanging notes for convertible debt typically occurs when a company is in a severely distressed situation and bondholders have little other choice. Although Realogy was and remains highly leveraged, it was nowhere near the brink of bankruptcy.