Grubb & Ellis Raising $90M Via Preferred Stock

The sale of the new stock is expected to close on or about Nov. 6. The company is selling the preferred shares, which carry a 12% coupon, through "definitive agreements with qualified institutional buyers and accredited investors." Grubb & Ellis has also granted the initial purchaser and placement agent a 45-day option to purchase up to an additional 100,000 shares of preferred stock, which would raise an additional $10 million if the purchaser exercises the option. JMP Securities acted as the initial purchaser and sole placement agent on the preferred equity offering.

Pehlke tells GlobeSt.com that the new capital will enable Grubb & Ellis to pay off its credit line in full under a special one-time option that it has negotiated with Deutsche Bank Trust Company Americas that allows the company to settle the entire debt by paying 65% of the amount due. Grubb & Ellis owes $63 million on the credit line, so 65% of the amount due would be about $41 million.

The one-time option requires Grubb & Ellis to pay off the credit line by Nov. 30. "It is our intention to do that," Pehlke says. "There will be some transaction costs, of course, but we will have a considerable amount of working capital available to us" after paying off the credit line, he says. Once the transaction is completed, Grubb & Ellis "will have a much improved balance sheet, with minimal debt obligations," he says.

The $90 million that Grubb & Ellis is raising through the preferred stock offering will include $5 million that is a conversion to stock of a $5 million loan that an affiliate of Kojaian provided to the company on Oct. 2. As part of the transaction, the company intends to immediately seek stockholder approval to amend its certificate of incorporation to, among other things, increase its authorized capital. If the stockholders approve the increase, each share of the new preferred stock would be convertible into 60.6 shares of common stock at a conversion price of $1.65 per share of common stock.

Although this transaction would normally require approval of the company's stockholders according to the rules of the New York Stock Exchange, Grubb & Ellis says, the NYSE shareholder approval policy "provides an exception in those cases where the delay in securing stockholder approval would seriously jeopardize the financial viability of the listed company." Grubb & Ellis has applied to the NYSE for such an exception.