By Daryl Loo and Sinead Cruise
LONDON, June 2 (Reuters) - UK industrial landlord Brixton has less than a month to sober up after a heady cocktail of aggressive acquisitions and high borrowings buried it under a 862.2 million pound ($1.4 billion) debt pile.
Brixton's loan covenants for its bank debt and unsecured bonds are due to be tested on June 30 and the group is in danger of becoming the first UK real estate investment trust (REIT) to be swallowed up by a savage two-year property slump.
Unsecured bondholders will have little to gain if the company -- which owns large chunks of logistics and warehouse property around London's Heathrow Airport -- falls apart, experts say.
Brixton's survival could hinge on positive outcomes to its problems, sketched out below:
DEBT EXTENSION, CONCESSIONS
Creditors might agree to concessions on loan covenants or extend refinancing dates, similar to those achieved by Quintain Estates this month, given Brixton's underlying strength.
"The banks will have to provide some flex, but ... they will only do this if certain precedents are met, i.e. asset disposals within a certain window, pay-down of debt, fees, etc," said Michael Burt, analyst at Noble Group.
These are short term fixes which can give Brixton some breathing space, but the company will still need to find other solutions to reduce its debt burden.
DEBT-FOR-EQUITY SWAP
Brixton's current predicament mirrors the troubles in the UK housebuilding sector, which earlier this year saw lenders to Crest Nicholson and McCarthy & Stone write off much of their debt in exchange for control over the firms.
JPMorgan analysts say a similar debt-for-equity swap deal could be the most likely outcome for Brixton, even though this would likely wipe out value for shareholders.
PROPERTY SALES
Brixton has staked its financial future on an asset sales programme to pay down debt and relieve pressure on its asset cover ratio, a key loan covenant measuring its ability to cover debt obligations with net assets.
At the end of 2008, Brixton's assets covered its outstanding debts by a ratio of 1.86 times, but a further 10 percent fall in property values from December would cause it to breach the asset cover ratio limit of 1.67 times, it said.
Average commercial property values have fallen 11.5 percent between January and April, data from Investment Property Databank show, and further declines are expected.
Brixton has sold around 77 million pounds of assets since March and hopes abound it will sell its interest in the 200 million pounds-plus Equiton joint venture shortly.
EQUITY RAISING
Brixton has not abandoned hopes of selling shares to repair its balance sheet, but has been left well behind by larger peers such as Land Securities and British Land, which have raised over 2.5 billion pounds this year.
Appetite for such cash calls is wearing thin, with investors less keen to fork out for new equity except for forward-looking strategies such as future acquisitions, a real estate investment banker said, who declined to be named.
TAKEOVER
One possible buyer for Brixton is Segro, Brixton's biggest sector competitor, and one of a small number of companies that have made a takeover approach to the embattled firm in the past few weeks.
Brixton's net asset value was 290 pence a share at Dec. 31, the latest data available, when its share price stood around 140 pence. The stock has since dropped to around 70 pence.
A deal would constitute the first takeover in the UK real estate investment trust sector in more than two years and would see the creation of one of Europe's biggest business space providers with around 6.6 billion pounds of assets.
But obstacles are the possible need for a second rights issue at Segro, and change of control clauses in Brixton's bonds which would require Segro to take on the burden of all of its bond debts, analysts said. ($1=.6103 Pound) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters) (Editing by Jon Loades-Carter)