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A New York hedge fund has accused Swedish property giant Samhällsbyggnadsbolaget i Norden of defaulting on its debt, a move that threatens to drag the struggling company into a messy legal fight.
Once a stock market darling of Sweden’s retail investors, SBB has faced a reckoning this year as an $8bn debt pile amassed in the era of low interest rates threatens the group during a downturn in the Scandinavian property market.
SBB announced late on Thursday that it had received a “purported acceleration notice” from a bondholder alleging that the company had breached a covenant and that €46mn of its bonds needed to be repaid immediately.
An acceleration notice is issued when a company is deemed to have breached terms of its debt, triggering a default, and allowing bondholders to claim full repayment.
US hedge fund Fir Tree Partners confirmed to the Financial Times that it had issued the acceleration notice and was committed to “commencing proceedings against SBB for recovery of the debt”.
“SBB’s own financial statements make it clear that it has been in breach of its financial covenant since 31 March 2023, yet it has been attempting to use misleading accounting changes to mask the covenant breach and avoid its obligations,” Fir Tree Partners said.
SBB, whose shares have plunged this year, said it “firmly rejects” the notion that it had breached its covenants and that the notice was “ineffective”.
Leiv Synnes, SBB’s chief executive, told the Financial Times that the allegations of a covenant breach were “not a new issue” and the company’s position “remains the same”.
“We firmly assert and feel confident that we remain in compliance with the consolidated coverage ratio,” he said.
SBB, whose debt was downgraded from investment-grade to junk earlier this year, provoked uproar among its creditors in May when it “changed the presentation” of its financial reporting and then published an updated version of its results.
Several analysts noted that the reissued results removed the “profit before financial items” line from its balance sheet, which had previously appeared to have put SBB in breach of a covenant, a strict term that leads to a default if not rectified.
In the wake of the accounting change, US law firm Cleary Gottlieb Steen & Hamilton sent a “letter before action” to SBB’s board on behalf of unnamed bondholders, threatening to issue an acceleration notice because of the alleged breach.
US hedge funds including Diameter Capital Partners were behind that effort, according to several people familiar with the matter, but they later opted for more a conciliatory approach. A wider group of bondholders including BlackRock are pursuing discussions with the company about its debt.
On most bonds, acceleration notices can only be issued by a trustee, which acts as a neutral arbiter and represents creditors. However, the documentation for some of SBB’s bonds allow for individual holders to issue such notices and demand repayment.
One bondholder said other investors have been wary about doing this, however, because it could lead to a protracted litigation process in which SBB could countersue, while also potentially restricting the ability to trade the bonds.
“You have to ride or die on the litigation,” he said.
Shares in SBB, founded by former politician Ilija Batljan, were down about 5 per cent in late-morning trading on Friday in Stockholm, taking their losses this year to more than 80 per cent. Batljan stepped down as chief executive earlier this month but remains a major shareholder and director.
SBB recently struck a deal with Canada’s Brookfield to become a majority investor in its educational property division, which it has said should release SKr8bn ($734mn) of liquidity “to address near-term financial commitments”.
