It was a year ago this week that the credit crunch finally and conclusively bit Australian markets when Centro Properties and Centro Retail Trust ran into trouble with US debts.

This was the week they owned up to the problem — next Wednesday, December 17 was when the two companies had to confess to the funding disaster with debt unable to be rolled over with funders.

And the Australian stockmarket, especially the high leveraged credit bingeing end, plus the banks and lots of other companies who were supposed not to be highly geared, were pinged: life in the markets was never the same again.

Then it emerged that Centro really had no idea of its debt position and several months of confusion reigned before the precise situation was sorted out. CEO Andrew Scott was forced to walk the plank, some board members followed and the new management and board have been working hard to try and stave off the debts being called by lenders here and offshore.

The Australian banks are becoming slowly tougher on debtors: They have already chopped Allco and ABC Learning; Oz Minerals is getting a hard time (aided by its own stupidity). Is time up for the Centro twins?

Centro Properties Group has $A2.3 billion due to an Australian lending group expiring on December 15 as well as a further $US450m of private placement notes. These were last extended on 2 June 2008. Centro Retail Group (CER) has US$1.1 billion of loans due to expire on December 15. These were last extended from late September 2008.

So there should be an announcement some time today on an extension, if one is coming, or on Monday at the latest.

But this week, brokers Goldman Sachs JBWere wrote off any chance of the two groups surviving, or surviving with a meaningful business plan.

Goldman Sachs wrote:

We are moving our recommendation for CER (and CNP) to SELL from Hold. We have significant concern about the upcoming refinancing which is due mid December and needs to be rolled once again. It is our view that the likelihood of a further extension is increasingly low.

Our reasoning is that CER has been in this financing bind for some 12 months now and, despite securing several short term financing roll-overs, it has been unable to secure any meaningful asset sales which were needed to address the debt positions.

The options for Centro, if it cannot extend its credit lines further, are extremely limited.

Even if it were to survive, we believe it has no real viable alternative now than to liquidate the portfolio over time and seek to return any excess capital to investors.

We now believe that even if a long term debt extension were secured, the damage to the brand of the core business over the past twelve months is irreparable and the ability for either REIT to be a healthy going concern is highly debatable.

Peter Fray

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