Canada to Help Olympia & York

IN an extraordinary move, the Canadian government is acting as a broker to try to save Olympia & York Developments Ltd., the world's largest property developer, from collapse.

The financial brinkmanship that brought the Toronto-based company to the edge of collapse has engulfed the entire Canadian banking system. Four big Canadian banks each have loans of more than $400 million to Olympia & York, and its financing problems have affected everything from bank stock prices to the value of the Canadian dollar.

It's a problem Ottawa can't afford to ignore.

"Because of the size and magnitude of the company, [a failure] could have a potential ripple effect, and it is that which we want to avoid," Donald Mazankowski, Canada's minister of finance, said Monday.

Olympia & York is short on cash to make payments on its $20 billion debt. Its assets could be worth as much $30 billion, but selling any of them in a fire sale to cover debts is not proving easy. In addition to Canadian lenders, banks in the United States, Europe, and Japan are exposed to the developer's problems. New York's Citicorp and Chemical Bank each have loaned Olympia & York $1 billion.

On Tuesday the privately owned company named Thomas Johnson, formerly president of Manufacturers Hanover Trust Company, as its new president and head of a debt-restructuring task force. The firms J. P. Morgan & Co., Burns Fry Ltd., and James D. Wolfensohn Inc., were named as consultants.

The Canadian government hopes to make it easier for the company to sell some assets by guaranteeing loans to the buyers.

Olympia & York is said to be trying to sell the 36 story Exchange Tower, which houses the Toronto Stock Exchange. The deal could end up as a swap of the building for debt, with the company's bankers as the new landlords and the government as go-between.

Olympia & York is the biggest landlord in Manhattan, the largest owner of real estate in Toronto's financial center, and the owner and developer of Canary Wharf, a $7 billion development under way in London's East End.

"There has been a decline in occupancy rates and in real estate values in their three major markets: New York, London, and Toronto. It's easy to see how the company got in trouble," says a Toronto financier with business ties to the developer.

Losses on Canary Wharf may be the immediate source of trouble, but most assets owned by Olympia have been shrinking in value. For instance, the total value of Olympia & York's stock portfolio is down $3.3 billion from a year ago; that's a drop of 26 percent in one year.

Olympia & York's holdings outside real estate include 72 percent of Gulf Canada Resources and 82 percent of Abitibi-Price, the largest newsprint producer.

`WE started downgrading some of their issues last summer," says Brian Neysmith, president of the Canadian Bond Rating Service in Montreal.

The company was pledging shares of Trizec, Trilon, and GW Utilities, as collateral, "and the value of those assets were starting to fall."

An Olympia & York spokesman says the problems would be solved. Current "speculation surrounding the commercial paper [short-term debt] program created a liquidity crisis that delayed arrangements for other sources of finance," he says.

Banks and the governments of Canada and Britain are struggling to make those arrangements and avoid a collapse of the international property empire. "Everyone is hoping for a solution. A failure would seriously hurt Canada's ability to borrow in the foreign markets. That's why the government is involved," says one senior Toronto banker.

Olympia & York is controlled by the Reichmann family of Toronto. Their penchant for privacy may be part of the present liquidity crisis. Mr. Neysmith says his bond-rating service refused to put any rating on many Olympia & York issues because the developer would not open its financial records.

Despite the rush to sell Canadian bank shares this week, Neysmith says "the Canadian banking system should be able to handle any problems that arise. One has to assume most of those loans are secured against properties."

That assumption could also be made with US banks, but not with Japanese banks, analysts say.