This is where the BDC Credit Reporter meets the Sopranos: On December 9, 2019 we hear from multiple news outlets – who love this sort of material – that the Director of Development at real estate company HFZ Capital has been fired. Apparently, the individual in question has been charged by prosectors with working with organized crime to siphon off hundreds of thousands of dollars from New York real estate projects in which HFZ was involved. We should note that the Director Of Development has pleaded not guilty.
This is what the company had to say about the episode: “In a statement, HFZ said it, along with other developers in NYC, learned of the investigation into CWC months ago and removed CWC from its projects. “HFZ immediately terminated Mr. Simonlacaj’s employment upon learning of the allegations against him, which run contrary to the values of the firm and how its business is conducted,” HFZ said.”
More disturbing from a credit standpoint is that this individual had been convicted of an earlier offense and spent 3 months in prison and been vouched for by one of the owners of HFZ as recently as 2016…
The only BDC with exposure to closely held HFZ is Monroe Capital (MRCC) which had two term loans outstanding – due in 2019 and 2021 respectively – with a cost of $23.2mn at September 30, 2019. At the time, the loans were carried at par. However, both loans appear to be publicly traded according to Advantage Data records. The 2019 loan has already reached its maturity and has – presumably – been repaid. However, the 2021 loan was last priced at a (44%) discount to par. MRCC has $5.1mn invested at cost in debt with a face value of $9.0mn.
This is the first time we’ve familiarized ourselves with HFZ Capital – a well known developer in New York who’s seeking to build a huge project in the High Line funded by a hedge fund – and there’s much more to learn. Right away, though, we are giving the company a Credit Rating of 4 – our Worry List – due to the very serious charges brought against one of its top executives and the valuation of the 2021 debt.