Sotheby’s said Monday it has completed the purchase of its York Avenue flagship headquarters and auction premises in New York City for $370 million.
The purchase was funded by the assumption of the prior owner’s mortgage of $235 million at a rate of 5.6 percent, a $50 million cash payment, which was made in January 2008, and an $85 million cash payment which was funded at closing on Feb. 6, when the purchase was completed, the auction house said.
“Sotheby’s New York headquarters are the premier auction facility in the world and integral to our business,” said Bill Ruprecht, Sotheby’s president and chief executive officer. “The 2 building is a strategic asset to this organization and we are extremely excited to be able to own it once again.”
The building transaction has eliminated Sotheby’s capital lease obligation on the York Avenue property which had a 10.4 percent rate and replaced it with the much lower mortgage obligation. This will result in annual cash interest expense savings on the building of approximately $4 million in 2009, the company said.
Sotheby’s also announced that in December and January it had repurchased $21.8 million of its $150 million aggregate outstanding 7.75 percent Senior Notes due June 15, 2015, for $12.1 million which represented an average cost of 56 cents on the dollar for these repurchases. The pre-tax gain associated with these repurchases was $9.1 million.
The company also announced that it successfully completed an amendment to its senior secured credit agreement with its existing banking syndicate which allows the company says allows it more flexibility on its covenants. As a result of the amendment, the interest rate on its borrowings will move from LIBOR plus 1.75 percent to LIBOR plus a margin between 3.25 percent and 4.5 percent depending on the company’s quarterly leverage ratio. In addition, the company’s total borrowing capacity was reduced from $300 million to $250 million, all of which is currently undrawn.
“With the additional leverage that Sotheby’s incurred to purchase the York Avenue property, management thought it prudent to amend its existing banking agreement to gain flexibility with respect to our loan covenants. said Bill Sheridan, Sotheby’s chief financial officer. The reduction in the total borrowing capacity is appropriate in light of the company’s current cash balances and projected liquidity needs.”