K.J. or anyone - let's look at these real estate obligations on leases originally entered into by GX that were assumed by EXDS with the landlords agreeing to the assumption provided GX remained on the hook.
In a typical Chapter 11 scenario, EXDS will reject the most unfavorable leases, basic on weighing of the business done by those hosting centers versus the cost, including rent, to operate. EXDS is likely to affirm some of its leases, but I certainly don't know how the former GX properties stack up against EXDS's homegrown facilities. So, that's the first question. The quick second question is, if EXDS affirms some significant number of the old GX leases, does a debt-restructured EXDS have the capability to continue in business indefinitely and keep paying the rent.
The next topic is mitigation, which Casey cites in the GX press release on EXDS. Do not be overly optimistic about this.
1. There is little motivation for landlord's to voluntarily terminate these leases for cents on the dollar. Even if GX publicly threatens its own BK in order to induce landlords to settle, there is a risk to landlords that such a settlement would be voided as a pre-filing preferential payment in the event of GX BK.
2. The real estate assets are (a) highly specialized, and (b) the rents are hefty on a psf basis. There is already a major glut of "carrier hotel" and other telecom/data facilities in this country. So this is no easy sublease deal. A factor complicating the "adaptive reuse" scenario would be the typical lease covenants that restrict alterations by the tenant.
So what I am saying is that to the extent GX gets "put" its old leases because EXDS rejects them, the mitigation Casey talked about is not exactly a walk in the park, and when GX takes the charge to w/o the balance of its investment in EXDS, it will need to reserve for these future lease obligations as well - which is hard to figure given the uncertainties outlined. |
