Signa Prime and Signa Development ask for receivership to prepare a bankruptcy arrangement. The losses will be very heavy

Signa Prime holds a portfolio of 54 properties and prime construction projects in Germany and Austria. These include, for example, the Elbtower under construction in Hamburg, the KaDeWe department store in Berlin, Oberpollinger in Munich, Alsterhaus in Hamburg and the luxury shopping boulevard Goldenes Quartier in Vienna.

According to the company, Signa Development is “in the same situation” as Prime and will submit its application for the self-administered restructuring process on Friday this week. Signa had already announced some time ago that the company was preparing an application for self-administration.

Signa Development mainly develops projects away from prestigious city center locations, such as the Up office complex in Berlin. The subsidiary Signa Development Finance has a bond in circulation with a volume of 300 million euros. Many investment trusts specializing in high-yield bonds have invested there, including DWS, asset manager Schroders and Invesco.

Billionaire lawsuit against Signa Holding

For weeks, those in charge have been grappling with the future of the Signa group, which in its best period had real estate assets of 27 billion euros. High construction costs, rising interest rates on loans and internal problems have put Signa under severe pressure since last year. Many of the group's construction sites are currently at a standstill.

Signa Holding has already taken an important step in the restructuring process. After an initial meeting with the creditors, the Vienna Commercial Court decided that the procedure can continue to be conducted under independent administration, as confirmed by the restructuring administrator Christof Stapf.

So far 43 creditors have registered claims totaling 1.13 billion euros, the deadline expires until January 15. Signa Holding expects total debts of 5 billion, but payment requests for three billion are expected. The difference is explained on the one hand by the debts towards affiliated companies and by the fact that many privileged creditors, who know they can recover on the properties, do not they will submit an application for inclusion in the liabilities and will refer directly to the guarantees. It will be present by February 12th

Individual creditors have also initiated legal actions in which they want to collect debts outside of the proceedings – both from the holding company and directly from René Benko. Arab sovereign wealth fund Mubadala has filed two lawsuits totaling one billion euros, the restructuring administrator's report lists. However, the urgent proceeding was rejected by the arbitral tribunal. Additionally, Walid Chammah, a former member of Signa's advisory board, is suing for a €15 million brokerage fee. The competition criterion will now apply to everyone.

As the report continues, Signa Holding holds majority stakes in both Signa Prime (58%) and Signa Development (52%) “through various investment vehicles”. He therefore has a great interest in ensuring that the two companies are successfully restructured.

Given the confusing financial structure, it is unclear to what extent the holding company would benefit from a real estate sale. Because apparently a large part of the shares have already been pledged to creditors or have options, as administrator Stapf writes.

Signa fired the head of Prime and Development without warning

Numerous other Signa branches are now insolvent. Online sports retailer Signa Sports United, which is part of the group, went bankrupt at the end of October. At the end of November, the most important German real estate project service company, Signa Real Estate Management Germany, also declared bankruptcy. Companies linked to individual projects also went bankrupt, such as the Berlin construction project in Schönhauser Alle.

In addition to the bankruptcy administrators, the restructuring is in the hands of restructuring expert Erhard Grossnigg. Initially hired only as director of restructuring, he was shortly thereafter appointed successor to the fired CEO Timo Herzberg. Herzberg, CEO of Signa Prima and Signa Development since 2021, was dismissed without notice and with immediate effect on “suspicion of serious breaches of duty”. Herzberg has long been considered Signa's most important coach, very close to Benko.

Grossnigg has only been on the board of directors of Signa Prime Selection and Signa Development Selection since the beginning of December. Some observers describe him as René Benko's confidant with little real estate experience. He is 77 years old and has actually been retired since 2016.

The effects of the bankruptcy are even more far-reaching than those of Signa Holding

The self-managed failures of Signa Prime and Development will likely have an even greater impact than those of their parent company. With over five billion euros in liabilities, it was the largest bankruptcy in Austrian economic history, while the liabilities of the affiliated companies Prime and Development are approximately double that .

The self-administration procedure in Austria requires creditors to be offered a minimum share of 30% of their claims in the restructuring plan. Furthermore, the restructuring plan must be approved within 90 days. If this were to be successful after consultation with the court, Signa Prime and Development as well as Signa Holding would have two years to restructure. However, the result may not even be positive, in which case the decline will then precede the bankruptcy liquidation.

It will also be interesting to find out how many Signa Prime and Development properties have been given directly as collateral to creditors, because their value could make the difference between the approved restructuring plan and the insolvency liquidation.

Some commercial subsidiaries have chosen a different path to protect themselves from the insolvency of Signa Holding. Signa European Invest Holding AG (EIH) and Signa Retail Selection AG in Switzerland have requested a debt deferral, which is a kind of creditor protection. Signa's two Swiss subsidiaries now want to sell their investments, use the proceeds to pay debts and then liquidate. If there is still money, it will go to Signa Holding.

However, a large number of creditors will face significant losses which will have significant repercussions on the economies of Germany and Austria, as well as on their credit systems. International groups such as Unicredit, RBI and Julius Bär are involved, but very strong credits are also boasted by the banks of the German Lands where Signa's activities took place. This means that important repercussions can be expected for some of these credit institutions.