Avison Young Ruled In Default By S&P As It Reaches Deal To Restructure

Avison Young has defaulted on the company's $325M senior term loan after missing principal and interest payments the last two quarters, according to ratings agency S&P Global.

The Toronto-based brokerage, which employs 5,000 people in 100 offices spread across 19 countries, had its corporate credit rating downgraded to SD, or selective default, while the rating on its senior term loan was downgraded to D, according to a release from S&P Global.

In an interview with Bisnow Saturday, Avison Young CEO Mark Rose said the company has reached a deal with its lenders and investors to reduce its debt burden by more than half and restructure the business with a smaller board. 

That deal, which hasn’t closed yet, comes with new debt, which will be invested into the company's growth.

"The actual term debt of the company is going to be much, much smaller, the total obligations are going to be more than 50% reduced in total," Rose said. "And the next obvious question is well, then you must have given up something else. No, it's just eliminated. It just goes away, because everybody believes in the company and our strategy and where we're going."

Rose denied that the company missed payments, as S&P's release stated. He said the lack of payments were part of its arrangement with its lenders as restructuring talks were ongoing. The downgrade was a result of AY informing the ratings agency that it was about to announce a new deal on the debt, he said.

"We haven't been paying for months because that was the agreement between 100% of the lenders and investors," he said. "And so we restructured the company. It's been entered into, it will close in about a week, week and a half. S&P has an obligation to say that when something in one form is changed into a second form, that you've not delivered, and therefore you need to be downgraded."

The company took out a $325M senior loan in 2019 and a $50M senior loan in 2022, both of which mature in January 2026 and both of which are in default. According to S&P's database, the balance on those loans is now $368M and $75M, respectively. The agency's outlook on the company's credit is negative.

The company's credit was downgraded to junk status in September after S&P determined its liquidity was eroding with less revenue coming in and interest rates going up.

“The negative outlook reflects our view that the company's liquidity will be under stress for the next 6-12 months, and without additional sources of liquidity and amendments of the existing credit agreements, Avison Young is unlikely to meet its liquidity needs,” S&P Global analysts wrote in September.

The privately held company took out the senior term loan in 2019 to fund the acquisition of UK brokerage firm GVA Grimley and pay down debt maturing in 2021.

It also entered into a $60M revolving credit facility and took on a $65M equity investment from Canadian pension fund Caisse de dépôt et placement du Québec at the time. The fund had previously injected Avison Young with a $250M equity investment in 2018.

The company is current on payments for the credit facility, which Rose said will be increased as part of the new restructuring.

CDPQ's preferred equity, which Rose said "looked like debt," will be also reduced by more than half and has been converted entirely to equity in the company going forward. Avison Young will still be majority-owned by its principal brokers, but their share of the equity will be reduced slightly.

The brokerage's board will be restructured to just five members, down from 11. The new board will be made up of Rose, two independent directors appointed by the company and two appointed by its lenders. CDPQ's two board seats will be eliminated, as will all four of the board seats held by Avison Young professionals. Rose said the new board more resembles that of a public company.

When S&P downgraded Avison Young’s credit rating in September to CCC, it questioned the company’s ability to make an estimated $20M in quarterly debt payments and $7M in lease payments. The ratings agency said reviewing the information it has received from Avison Young to this point “has led us to revise our assessment of management and governance on the issuer to negative from moderately negative.” Rose called that a "non-issue." 

Moody’s also downgraded its rating of the company’s debt in August, citing the company’s “weak operating performance” and high leverage ratio.  The company had debt totaling more than 16 times its earnings before interest, taxes, depreciation and amortization. 

“As a result, we view Avison's capital structure as unsustainable and that it will require some level of concessions from its lenders to address leverage, liquidity and cash requirements, particularly over the near term,” Moody’s analysts wrote. “Avison is being impacted by a very challenging macro environment where a deceleration in transaction activity is ongoing and has broadened as inflation concerns and higher interest rates continue to drive greater caution among its customers.”

Global commercial real estate transaction volumes were down more than 50% in 2023, which took a toll on the performance of all commercial brokerages, but those with healthier balance sheets and more lines of recurring revenue — such as project, property and facilities management — have been able to withstand the downturn better.

Catie Dixon contributed reporting to this article.

UPDATE, FEB. 24, 5:45 P.M. ET: This story has been updated to include comments from Avison Young CEO Mark Rose.