Blog on the Run: Reloaded

Tuesday, September 29, 2009 6:27 am

Not bad work if you can get it

Filed under: Weird — Lex @ 6:27 am
Tags: , ,

I admit it: I know next to nothing about economics and finance. So I have a couple of questions about a new round of debt being offered by Developers Diversified Realty, which owns a lot of commercial real estate … which, you may have heard, ain’t doing so hot.

First, when your aforementioned primary assets ain’t doing so hot, why would you pay a bank $5 million-plus in underwriting fees to refinance what you owe it, on which you’re currently paying 1.5%, for debt on which you’ll be paying 9.625%?

Second, is that even legal?

Third, even if there’s a good reason for it and it’s legal, why would your stockholders not want your head on a stick?

Fourth, even given the benefit to Bank of America/Merrill Lynch, why are they taking $5 million in fees on this rather than the customary 3%, which would be more like $9 million? Particularly when BofA soon may need quite a bit of cash just to pay the lawyers?

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