Israel’s securities regulator said it would financially back a class action lawsuit involving a soured bond deal with Starwood Capital Group, a move that comes as that country’s debt market, once popular with U.S. property investors, becomes more difficult for some foreign companies.
The lawsuit, filed in 2019, alleges Starwood misrepresented and omitted certain risks in the prospectus for a NIS 910 million ($281 million) bond issue, which was backed by a group of US shopping malls. The lawsuit alleges that there was insufficient information about the lease covenants and loan ratings linked to some of the underlying assets.
The Israel Securities Authority said in December that it decided to pay part of the legal costs of the lawsuit because it believed the lawsuit was in the public interest and had a reasonable chance of being certified by a Israeli court. A spokeswoman for the authority said her action does not mean she supports the plaintiff’s position in the lawsuit.
The lawsuit alleges damages of approximately 99.6 million shekels, according to the regulator’s public statement. Starwood and its executives “would not have complied with the disclosure obligations applicable to them” because its prospectus was “missing and misleading and important details were omitted from it”, according to the statement from the authority.
The trial is expected to move forward in Israeli courts later this year.
A spokesperson for Starwood pointed out in a written statement that the private equity firm said it believed the lawsuit allegations were without merit. “The [authority] has already funded many ongoing lawsuits and this does not affect the merits of any of the cases,” he said.
The Israeli bond market was a popular place for American real estate companies, which raised billions of dollars in the years following the 2008 financial crisis. Many American real estate companies tapped into the Israeli bond market because they could borrow at lower interest rates than some loans in the United States, and the Israeli bond market often offered more flexible terms.
Issuers included commercial real estate companies such as Silverstein Properties Inc., one of the developers of the World Trade Center, and Related Cos., which developed the Hudson Yards complex in New York. New York luxury condo developer Extell Development Co. also sold bonds in Israel.
But the Israel Securities Authority began cracking down on some foreign bond sales last year after several high-profile bond offerings, including the Starwood Mall portfolio, ran into trouble and resulted in heavy losses for Israeli investors. In 2021, the authority proposed new disclosure requirements requiring fund managers to inform investors of the potential risks of buying bonds issued by certain foreign borrowers “without affiliation with Israel”.
Since the new regulations were proposed, there has been only one new bond issue by a foreign issuer with no affiliation to Israel that has not issued bonds in this market in the past.
A spokeswoman for the authority said the drop in issuance volume “corresponds to the general trend in Israel to increase equity issuance rather than debt issuance.”
The lawsuit against Starwood involves a portfolio of shopping centers in California, Indiana, Ohio and Washington state. Starwood bought the properties in 2013 from shopping mall giant Westfield Group and refinanced the portfolio in 2018 through the sale of bonds in Israel.
After the bond sale, the portfolio struggled financially in part due to the pandemic and growing competition from online retailers. Starwood defaulted on debt and lost control of properties in 2020.
This story was published from a news agency feed with no text edits
Never miss a story! Stay connected and informed with Mint. Download our app now!!
Israel’s securities regulator said it would financially back a class action lawsuit involving a soured bond deal with Starwood Capital Group, a move that comes as that country’s debt market, once popular with U.S. property investors, becomes more difficult for some foreign companies.
The lawsuit, filed in 2019, alleges Starwood misrepresented and omitted certain risks in the prospectus for a NIS 910 million ($281 million) bond issue, which was backed by a group of US shopping malls. The lawsuit alleges that there was insufficient information about the lease covenants and loan ratings linked to some of the underlying assets.
The Israel Securities Authority said in December that it decided to pay part of the legal costs of the lawsuit because it believed the lawsuit was in the public interest and had a reasonable chance of being certified by a Israeli court. A spokeswoman for the authority said her action does not mean she supports the plaintiff’s position in the lawsuit.
The lawsuit alleges damages of approximately 99.6 million shekels, according to the regulator’s public statement. Starwood and its executives “would not have complied with the disclosure obligations applicable to them” because its prospectus was “missing and misleading and important details were omitted from it”, according to the statement from the authority.
The trial is expected to move forward in Israeli courts later this year.
A spokesperson for Starwood pointed out in a written statement that the private equity firm said it believed the lawsuit allegations were without merit. “The [authority] has already funded many ongoing lawsuits and this does not affect the merits of any of the cases,” he said.
The Israeli bond market was a popular place for American real estate companies, which raised billions of dollars in the years following the 2008 financial crisis. Many American real estate companies tapped into the Israeli bond market because they could borrow at lower interest rates than some loans in the United States, and the Israeli bond market often offered more flexible terms.
Issuers included commercial real estate companies such as Silverstein Properties Inc., one of the developers of the World Trade Center, and Related Cos., which developed the Hudson Yards complex in New York. New York luxury condo developer Extell Development Co. also sold bonds in Israel.
But the Israel Securities Authority began cracking down on some foreign bond sales last year after several high-profile bond offerings, including the Starwood Mall portfolio, ran into trouble and resulted in heavy losses for Israeli investors. In 2021, the authority proposed new disclosure requirements requiring fund managers to inform investors of the potential risks of buying bonds issued by certain foreign borrowers “without affiliation with Israel”.
Since the new regulations were proposed, there has been only one new bond issue by a foreign issuer with no affiliation to Israel that has not issued bonds in this market in the past.
A spokeswoman for the authority said the drop in issuance volume “corresponds to the general trend in Israel to increase equity issuance rather than debt issuance.”
The lawsuit against Starwood involves a portfolio of shopping centers in California, Indiana, Ohio and Washington state. Starwood bought the properties in 2013 from shopping mall giant Westfield Group and refinanced the portfolio in 2018 through the sale of bonds in Israel.
After the bond sale, the portfolio struggled financially in part due to the pandemic and growing competition from online retailers. Starwood defaulted on debt and lost control of properties in 2020.
This story was published from a news agency feed with no text edits
Never miss a story! Stay connected and informed with Mint. Download our app now!!