Olympia & York Developments Ltd. began talks in New York on Wednesday aimed at keeping its U.S. subsidiary out of bankruptcy.
The meeting was still in progress as American Banker went to press. But it appeared the Toronto-based developer was facing another uphill battle.
The meeting was boycotted by J.P. Morgan & Co., which led a $160 million syndicated loan last year to refinance some of Olympia's U.S. properties.
According to reliable sources, Morgan was trying to pressure Olympia to come up with a more realistic plan and had no intention of forcing the developer into bankruptcy. The company's British and Canadian operations are already in bankruptcy.
Morgan declined to comment. It was unclear how many of the eight foreign banks in the syndicate had joined Morgan's boycott.
"If they can't agree with their lenders, it obviously makes [bankruptcy] more likely," said David Shulman, managing director of Salomon Brothers.
The plan that Olympia circulated to lenders called for a five-year moratorium on principal payments in exchange for a positive cash flow within 36 months. The company appeared to offer little in the way of equity or seniority of claim in exchange for forebearance.
Olympia said it submitted a business plan under which it would own and manage "a core of commercial properties concentrated in New York City.
A bankruptcy filing on Olympia's U.S. holdings could signal a new low ebb in the nation's real estate market, because it would affect trophy properties in nine major cities, including the huge World Financial Center in New York.
Mr. Shulman said, however, that an O&Y bankruptcy would have little impact on real estate values because prices already reflect Olympia's troubles, which came to light early this year.
Also raising the ire of bankers in the Morgan group, as well as bondholders secured by an $850 million mortgage in the World Financial Center, was word that Olympia had secretly sold a $150 million stake in the complex to a holding company controlled by the Bronfman family of Canada. The lenders are likely to insist on being paid before the Bronfman unit.