Signa Prime and Signa Holding ask for legal protection moving toward bankrupcy

The real estate company Signa Prime, owned by Austrian billionaire René Benko and the flagship of his group, has filed for self-administration with the Vienna Commercial Court to prepare a composition. Unlike traditional insolvency proceedings, in this process, management remains on board, but they are assigned a restructuring manager to monitor their activities.

Signa Prime is the heart of the business empire that Benko has put together over the past nearly 30 years and is now faltering. The fate of the entire group is likely tied to the question of whether Prime’s restructuring will be successful.

The company announced that the purpose of the proceedings is the orderly continuation of business operations under self-administration and the sustainable restructuring of the company. “It is important to find long-term solutions,” said Erhard Grossnigg, CEO of Signa Prime. The quality of the real estate portfolio is “very good.”

Signa Prime brings together the most prestigious real estate assets of the already insolvent Signa Holding, which also includes real estate developer Signa Development, retail company Signa Retail with Galeria, and the KaDeWe Group.

Signa Prime holds a portfolio of 54 prime real estate and construction projects in Germany and Austria. These include, for example, the Elbtower under construction in Hamburg, the KaDeWe department store in Berlin, Oberpollinger in Munich, Alsterhaus in Hamburg, and the luxury shopping boulevard Goldenes Quartier in Vienna.

So far, 43 creditors have registered claims.
According to the company, Signa Development is “in the same situation” as Prime and, on Friday of this week, will file for restructuring proceedings with self-administration. Signa had already announced some time ago that the company was preparing an application for self-administration.

Signa Development mainly develops projects away from prestigious downtown locations, such as the Up office complex in Berlin. Subsidiary Signa Development Finance has a bond with a volume of 300 million euros outstanding. Many mutual funds specializing in high-yield bonds have invested there, including DWS, asset manager Schroders, and Invesco.

Billion-dollar lawsuit against Signa Holding

For weeks, managers have been grappling with the future of the Signa Group, which in its heyday had real estate assets of 27 billion euros. High construction costs, rising interest rates on loans, and internal problems have put Signa under severe pressure since last year. Many of the group’s construction sites are currently at a standstill.

Signa Holding has already taken an important step in the restructuring process. After an initial meeting with creditors, the Vienna Commercial Court has decided that the proceedings can continue to be conducted under independent administration, restructuring administrator Christof Stapf confirmed.

So far, 43 creditors have registered claims totaling 1.13 billion euros; the deadline expires on January 15. Signa Holding expects total debts of $5 billion, but claims of $3 billion are expected The difference is explained on the one hand by debts owed to affiliated companies and by the fact that many preferential creditors, who know they can recoup on real estate, will not file claims and will recoup directly on collateral. By February 12, it will be filed

Individual creditors have also initiated legal actions by which they want to collect claims outside the proceedings, both from the holding company and directly from René Benko. The Arab sovereign wealth fund Mubadala has filed two lawsuits totaling 1 billion euros, the restructuring administrator’s report lists. However a rbitration court dismissed urgent proceeding request . In addition, Walid Chammah, a former member of Signa’s advisory board, sued for a brokerage fee of 15 million euros. All of them will now be subject to the bankruptcy criteria.

As the report continues, Signa Holding holds majority stakes in both Signa Prime (58 percent) and Signa Development (52 percent) “through various investment vehicles.” It therefore has a major interest in ensuring that the two companies are successfully restructured.

Given the confusing financial structure, it is unclear to what extent the holding company would benefit from a property sale. Because apparently much of the stock has already been pledged to creditors or has options, as administrator Stapf writes.

Signa fired the head of Prime and Development without notice.

Several other Signa subsidiaries are now insolvent. Online sporting goods retailer Signa Sports United, part of the group, went bankrupt in late October. The largest service company for German real estate projects, Signa Real Estate Management Germany, also filed for bankruptcy at the end of November. Companies related to individual projects also went bankrupt, such as the Berlin construction project in Schönhauser Alle.

In addition to the bankruptcy administrators, restructuring is in the hands of restructuring expert Erhard Grossnigg. Initially hired only as restructuring director, he was appointed shortly thereafter as the successor to fired CEO Timo Herzberg. Herzberg, CEO of Signa Prima and Signa Development since 2021, was fired without notice and effective immediately for “suspicion of serious breaches of duty.” Herzberg has long been considered Signa’s top coach, very close to Benko.

Grossnigg has only been on the boards of Signa Prime Selection and Signa Development Selection since early December. Some observers describe him as René Benko’s confidant with little real estate experience. He is 77 years old and has actually been retired since 2016.

The effects of the bankruptcy are even broader than those of Signa Holding.
The self-managed bankruptcies of Signa Prime and Development are likely to have an even greater impact than those of their parent company. With more than five billion euros in liabilities, this was the largest bankruptcy in Austrian economic history, while the liabilities of subsidiaries Prime and Development are about twice as large.

The self-administration procedure in Austria requires that creditors be offered a minimum 30 percent share of their claims in the restructuring plan. In addition, the restructuring plan must be approved within 90 days. If this is successful after consultation with the court, Signa Prime and Development, as well as Signa Holding, would have two years to restructure. However, the outcome might also not be positive, in which case bankruptcy liquidation would then follow.

It will also be interesting to find out how much of Signa Prime and Development’s real estate has been given directly as collateral to creditors, because it is precisely their value that could make the difference between the approved restructuring plan and bankruptcy liquidation.

Some commercial subsidiaries have chosen a different path to protect themselves from Signa Holding’s insolvency. Signa European Invest Holding AG (EIH) and Signa Retail Selection AG in Switzerland have applied for a debt deferral, which is a kind of creditor protection. Signa’s two Swiss subsidiaries now want to sell their investments, use the proceeds to pay off debts, and then liquidate. If there is any money left over, it will go to Signa Holding.

However, a large number of creditors will face major losses that will have major repercussions on the economies of Germany and Austria, as well as on their credit systems. International groups such as Unicredit, RBI, and Julius Bär are involved, but very strong claims are also held by banks in the German states where Signa’s operations were located. This makes it likely that there will be major fallout for some of these credit institutions.