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After three months of negotiation, Arco Invest EOOD, a Bulgarian subsidiary of Arco Investeeringute AS (a wholly-held subsidiary of Arco Vara AS), and Piraeus Bank have agreed to amend the loan agreements of the Madrid Boulevard and Manastirski developments.

The amendments:

1) lower the interest rates of the loans by around 1.5% percentage points and the group’s annual interest expense by more than 200,000 euros;

2) reduce the amount of loan principal to be repaid to the bank on the sale of each apartment. This resolves a critical issue and the group can continue transferring ownership of the apartments to more than 30 customers, who have already signed a preliminary agreement, and repaying loan principal.

Until the restructuring, the amount of loan principal to be repaid by Arco Invest EOOD on the transfer of title to an apartment to a customer would have exceeded the final portion of the purchase price receivable from the customer at the date of transfer. Since the group was not willing to cover the difference, transfer of the apartments was suspended until the amendment of the loan agreements. This in turn, suspended the decrease in loan burden because the group did not receive cash from sale of goods.

3) will probably lower the group’s loan burden by more than 2 million euros, depending on the settlement behaviour of the customers, as the gross surface area of the apartments expected to be transferred to customers in the first quarter of 2013 exceeds 4,000 square metres;

4) impose on the group the obligation to repay 1.8 million euros to the bank in 2014. Thus, depending on sales results and other circumstances, the need for restructuring the loans may arise again.

Through restructuring of the loans, the group’s Bulgarian development operations are again sustainable, able to service their financial obligations with rental income and the risk of termination of loan agreements due to the group’s breach of loan terms has disappeared. Sale of finished goods in the Madrid and Manastirski projects continues. 

Further information on both developments can be found at: http://www.arcoinvest.bg/.
 
Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
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http://www.arcorealestate.com