Riley Buying LNR in $3.8 Billion Deal

LNR Prop. Corp., a real estate financing and development company, is being acquired by Riley Property Holdings for total consideration of about $3.8 billion, including the assumption of debt.

LNR shareholders are to receive $63.10 per share in cash compensation, LNR reports. Stuart A. Miller, chairman, LNR board of directors, said, "LNR will continue to grow and expand into new ventures with a group that has a proven track record of selecting investments that have excellent growth potential."

Mr. Miller and his family are also exchanging a part of their shareholding for about a 20.4% interest in Riley.

Riley Property Holdings is majority owned by affiliates of Cerberus Capital Management and its real estate affiliate Blackacre Institutional Capital Management.

The merger agreement permits LNR to consider other "unsolicited proposals" according to LNR.

The approval of LNR shareholders is required for the transaction to close.

Following the merger announcement, both Moody's Investors Service and Fitch Ratings have put some LNR securities on rating watch.

Moody's has placed the company's Ba3 senior subordinate ratings on review for possible downgrade affecting about $1 billion of securities.

The rating agency is concerned about LNR's taking on additional debt funding and "putting additional pressure on LNR's fixed charge coverage and effective leverage."

And Fitch Ratings has placed LNR on "rating watch evolving" affecting about $1.4 billion of "BB+" senior unsecured debt and "BB-" subordinated debt ratings.

Fitch said, "The rating watch evolving is driven by the significant degree of uncertainty at the present time concerning the company's funding and capitalization structure following the completion of the transaction.

Additional uncertainties remain relative to the future direction of LNR's leverage level, asset growth rate, and asset acquisition strategy, which Fitch believes are likely to become more aggressive."

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