Chiofaro files plan to skirt takeover. Recruits Prudential in bid to pay off loan on International Place
By Thomas C. Palmer Jr., Globe Staff | September 8, 2004
International Place developer Donald J. Chiofaro said yesterday a new partner will put a quarter of a billion dollars into his two downtown towers, a financial rescue that would reduce his ownership share considerably but stave off an impending takeover by his current lender.
According to a reorganization plan filed yesterday in US Bankruptcy Court in Boston, Chiofaro has enlisted Prudential Real Estate Investors of Parsippany, N.J., to put up $252 million and assume 90 percent ownership of International Place.
Chiofaro's current 40 percent equity interest would be reduced to 10 percent. Under the plan, the $650 million loan currently held by Tishman Speyer Properties of New York is to be paid off. Tishman is trying to gain control over the property through the loan.
Although the plan must be approved by the court and is likely to be opposed by Tishman in what could be a long legal battle, Chiofaro characteristically waved a victory flag yesterday.
"I love the idea of having an institutional partnership with the Pru," Chiofaro said in a telephone interview. "If you're going to defend the homeland against the marauders, it's not a bad idea to be standing on the Rock of Gibraltar."
The Rock is a symbol associated with Prudential Financial Inc. the new potential investors' parent company. In a brief statement, Prudential confirmed it signed a letter of intent to acquire International Place.
But R. Robert Popeo, chairman of Mintz Levin Cohn Ferris Glovsky and Popeo PC and lead counsel for Tishman, said the documents filed yesterday show Prudential is under no obligation to go through with the plan. "The letter says it's merely expressing interest in pursuing a possible investment," said Popeo. "It's nonbinding and creates no obligation on the part of Prudential to take any action whatsoever."
Chiofaro's International Place filed bankruptcy in May, seeking protection against Tishman's efforts to assume ownership. Tishman purchased Chiofaro's $650 million loan from Teachers Insurance and Annuity Association of America earlier this year, paying a discounted amount of about $595 million.
Chiofaro, who developed and owns the buildings jointly with Hillman Properties Inc., had been trying to find new investors since 2001, but his effort to recapitalize the towers was unsuccessful, and he was facing imminent default when he sought protection from the court.
He said yesterday the infusion of capital from Prudential will allow him to pay off the Tishman loan and own the 1.8-million-square-foot pair of skyscrapers with Prudential as his majority partner. Chiofaro said he would buy Hillman's current 60 percent ownership interest, though no agreement has been reached.
In court, Tishman's lawyers have argued that, though the face value of Chiofaro's note is $650 million, with penalties and interest and other costs that have accrued over the years, the amount he owes is tens or hundreds of millions more.
"It's either $650 million or $1.3 billion," Chiofaro said yesterday. "That will be the subject of the next fight." But, he added, "Prudential wouldn't make this commitment if there was any credence -- if it was over $650 million."
According to the documents and Chiofaro, Prudential will invest $252 million, the new ownership team will borrow $421 million, and one of Chiofaro's firms will contribute another $28 million. That $701 million is enough to pay off Tishman, Chiofaro said.
Chiofaro said he had talked to 20 potential financial partners, narrowing the field down to a dozen before he chose Prudential.
"We negotiated all weekend. It went right down to the wire," he said. "I didn't even go to a Red Sox game."
One of the major issues in dispute in the bankruptcy case is how much the buildings are worth on the market -- and whether that is more than the amount he owes. Chiofaro would not address the issue, but said the plan would put him in possession of 10 percent of whatever that is. He also said that under a formula agreed to by Prudential his interest could increase to 30 percent in a few years.
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