ProReal Europa 9/10 – SC Finance Four insolvent

Insolvency of the pool company affects ProReal investors

Once again, there’s bad news for investors of the ProReal Europa 9 and ProReal Europa 10 bonds. This time, it’s due to the insolvency of the pool company SC Finance Four, which filed for insolvency under self-administration at the Offenbach District Court. The Austrian Soravia Group announced this on March 12, 2024. SC Finance Four financed construction projects for the construction company. To do this, it received loans from the companies ProReal Europa 9 and ProReal Europa 10. Accordingly, investors now have to fear for their money following the insolvency.

The Soravia subsidiary One Group from Hamburg issued the subordinate bonds ProReal Deutschland 7, ProReal Deutschland 8 – exclusive follow-up offer, ProReal Europa 9, and ProReal Europa 10. Investors had already been informed that interest payments for the last quarter of 2023 were suspended. The reason was the difficult situation in the real estate market. Therefore, the construction projects in the portfolio should be subjected to a risk analysis, which is expected to be completed by the end of March.

Investors gave money to SC Finance Four

For investors in the companies ProReal Europa 9 and 10, things could now get even worse, according to the law firm MTR Legal Rechtsanwälte, which advises private and institutional investors in capital markets law. Investors in ProReal Europa 9 and 10 have invested a total of around 278 million euros. Their money was passed on as a loan to SC Finance Four GmbH, which financed various construction projects of Soravia and has now filed for insolvency.

According to “Fonds professionell online” on March 12, 2024, the construction projects in Unterföhring and Sylter Hof in Berlin must be completely unwound. There is a lack of sustainable financing. In addition, the Tegernsee project must be partly unwound, and there are significant delays in the Zollhafen Mainz project. The portal refers to a distribution circular from One Group, which “Fonds professionell” has available.

Investors face financial losses

The insolvency proceedings are to be conducted under self-administration. This means that SC Finance Four will try to get back on economically calm waters itself with the help of an insolvency administrator. For this purpose, it must submit an insolvency plan, and creditors and the insolvency court must give their consent. If self-administration fails, regular insolvency proceedings may also be opened in the end.

In both cases, investors are likely to face financial losses. The restructuring of SC Finance Four is likely to involve cuts for creditors. The problem for investors is also that these are subordinate bonds. Due to the agreed subordination, they cannot assert their claims if the insolvency of the issuer occurs or even threatens. Therefore, in a first step, it can be examined whether the subordination was effectively agreed. For effective subordination, the corresponding clauses for the investor must be clear and understandable, which is often not the case.

ProReal Deutschland 7 – Extension of term possible

In addition to the insolvency application of SC Finance Four, there are other developments that should make investors sit up and take notice. For example, there have been some restructuring measures that investors were not informed about. For example, SC Finance Four GmbH was spun off from the Soravia Group and transferred to another parent company, reported the Handelsblatt. In addition, the company’s registered office was relocated to the area of the Offenbach District Court. A relocation of the registered office shortly before filing for insolvency is at least noticeable.

There is slightly better news for investors in ProReal Deutschland 7 GmbH. Although they were recently informed that neither the due interest payment on June 30, 2024, nor the repayment of the bonds on December 31, 2024, is expected to be made on time, it is likely to result in an extension of the term, and defaults are not expected, the Soravia Group announced.

Options for investors

Whether this actually happens remains to be seen. In addition, an extension of the term also poses a risk for investors. Because a relaxation in the real estate market is currently not in sight.

In light of the worrying developments, investors in the ProReal bonds should consider their legal options, including asserting claims for damages. Claims for damages may arise, for example, if the investment advisors or investment intermediaries did not properly inform about the risks of the investment.

MTR Legal Rechtsanwälte advises in capital markets law and is happy to assist affected investors of the ProReal series.