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GK Investment Holdings Risks Bankruptcy, Seeks 7% Bond Exchange
GK Investment Holdings recently sent a letter to certain of its investors informing them that if 90% of those holding its 7% bonds do not exchange them for new bonds by the end of September, the company would default on its old bonds and “could be forced into bankruptcy.” Citing the Covid-19 pandemic’s adverse effects on the real estate market, GKIH said that the company is currently in a “difficult position”: if it sells its properties in order to pay current bondholders by the bonds’ maturity date of September 30th, these bondholders “likely would not receive their full principal amount due to the marked decline in retail real estate values.” In the letter, GKIH expressed its hope that extending the maturity date would allow time for the real estate market to recover, and for the firm to provide additional value to its investors.
What Is GK Investment Holdings?
According to Bloomberg, GK Investment Holdings is “a special purpose entity… formed for the purpose of issuing debt securities to repay existing credit facilities, refinance indebtedness, and for acquisition purposes.” Based in Chicago, Illinois, the company describes itself on its website as “an entrepreneurial opportunity-driven organization that has the insight and flexibility to adjust to a changing real estate market.” It seeks to create value for investors by acquiring real estate; providing in-house asset and property management, leasing, design, construction, and financing; redeveloping and repositioning its existing properties; maintaining income-producing properties; and growing its team. Its properties include malls and other commercial and residential properties in Illinois, Nevada, Florida, Texas, Michigan, and North Dakota.
What Are GK 7% Bonds?
GK Investment Holdings’ 7% bonds, as the name suggests, are bonds that pay interest of 7 percent. As the letter to investors explains, GKIH’s “old bonds” mature on September 30th, 2022. The new bonds, for which it is asking investors to exchange their old bonds, will mature on September 30th, 2025. Investors who exchange their old bonds for the new ones will receive interest of 7.5% for the period beginning September 30th, 2022 and ending September 30th, 2025, according to the letter.
Why Is GKIH Issuing New 7% Bonds?
The Covid-19 pandemic’s negative impacts on the real estate industry are at least partially responsible for GKIH’s request for investors to exchange their 7% bonds for new ones. As the letter explains, GKIH has two real estate assets whose value it hopes will increase over the next three years. One is a Lake Mead Crossing, a shopping center in Henderson, Nevada whose tenants include Big Lots, PetSmart, and Marshalls. GKIH is planning a self-storage development on the property, according to the letter, and it also intends to sell “several free-standing outparcels… which are more valuable when sold individually as single-tenant assets.” The company hopes that “as the retail real estate market recovers and we continue to add value to Lake Mead Crossing,” the asset will grow into one it can sell at a profit.
The other real estate asset described in GKIH’s letter to 7% bondholders is an LA Fitness facility in Oak Brook, Illinois. “Fitness retail has seen declines in values as mask mandates and Covid-19 fears reduced membership revenues across the sector,” the letter states. “However, recent months have shown that market begin its return to pre-Covid values. LA Fitness is a strong, good credit operator and, as values rise, we will seek to sell this asset as well.”
Could GKIH Go Into Bankruptcy?
GKIH’s letter to 7% bondholders does not mince words about what will happen if 90% of investors do not exchange their old bonds for new ones. “If we are unable to achieve an extension of the maturity date,” the letter states, “we will be forced to liquidate GKIH’s properties as-is.” Should this come to pass, the company states it would default on its old bonds, “significantly” delaying the repayment of principal to bondholders.
What Happens If GKIH Goes Into Bankruptcy?
The letter suggests that if GKIH enters the “time-consuming, expensive, and unpredictable” bankruptcy process, 7% bondholders may not see a return of principal until “as late as, or even later than, the proposed extended maturity date of September 30, 2025).” It even suggests that GKIH may be able to repay bondholders’ principal entirely.
What Should GK 7% Bondholders Do?
If your financial advisor recommended an investment in GK Investment Holdings 7% bonds, you may have grounds to file a FINRA arbitration claim and pursue the recovery of damages. Carlson Law represents investors involved in claims against financial advisors and investment firms throughout the United States, who have a responsibility to recommend only investments that are suitable for their customers, based on reasonable due diligence. If you or a loved one have suffered losses investing in GKIH 7% bonds, please call us at 888-976-6111 or complete our contact form for a free and confidential consultation.