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Sotheby’s Arranges New Loan; Borrowing Capacity Higher Than Expected

On Sept. 1, Sotheby’s announced it had entered into a new credit facility with a consortium of lenders including GE Capital (the financing unit of General Electric) and HSBC Bank.

NEW YORK—On Sept. 1, Sotheby’s announced it had entered into a new credit facility with a consortium of lenders including GE Capital (the financing unit of General Electric) and HSBC Bank. The new credit facility is available through August 2012 and provides for borrowing of up to $200 million. Sotheby’s CEO Bill Ruprecht called the new facility a “very positive development. Our previous agreement with Bank of America was due to expire in September 2010 and this new three year agreement provides a longer term solution with more flexible covenants and borrowing base as well.”

On Aug. 5, when Sotheby’s announced its second-quarter and half-year earnings, Ruprecht had said the new credit facility was expected to be $150 million. The credit deal closed with $50 million more in borrowing capacity, he said in a statement on Sept. 1, “due to a high level of investor interest,” adding that it reflects “a clear endorsement of Sotheby’s credit.”

The price of Sotheby’s shares on the New York Stock Exchange has been trending upward for most of August, despite the second-quarter earnings report showing a steep drop in revenue and profit as the art market endured a sharp contraction. The stock was trading around $14.40 and rose above $17 late last month, but has recently fallen back to around $15 per share.

In its earnings report, Sotheby’s listed second-quarter operating revenues of $167.3 million, a 48 percent decline from the second quarter of last year. Net income for the second quarter, during which the major spring auctions take place, was $12.2 million this year, down from $95.3 million for the same quarter last year; for the first half of this year, Sotheby’s had a net loss of $22.3 million, compared with net income of $82.9 million for the first half of last year.

On the other hand, the house reported a 41 percent increase in auction commission margin in the second quarter, from 15.1 percent in the second quarter of last year to 21.3 percent this year. Given the current instability and weakness in the market, several experts have also noted collectors’ recent preference for private sales over selling at auction. Sotheby’s second-quarter private sales increased by 45.6 percent from last year, from $91.8 million to $133.6 million. But whereas Sotheby’s reported a spike in private sales, Christie’s were down by a third. Sotheby’s filing also noted that the house has substantially reduced its use of auction guarantees this year, and “expects to continue to significantly limit its use of auction guarantees for the foreseeable future.”

Christie’s, as a privately held company, is not required to file detailed financial reports, but announced that its global sales also fell considerably in the first half of this year. Christie’s said its worldwide sales for the first six months of this year were $1.8 billion, down 48.6 percent from the $3.5 billion recorded for the first half of last year. Christie’s said 211 works sold for more than $1 million each, less than half of the 457 lots that sold for over $1 million in the comparable period last year. Private sales for the first half of this year were $199.7 million, down 34 percent from the $301 million half-year total for last year.

Meanwhile, Ruprecht—who earlier this year took a $100,000 pay cut that brought his salary to $600,000 (ANL, 3/31/09)—sold a block of Sotheby’s stock late last month. On August 19, according to filings made with the U.S. Securities and Exchange Commission, Ruprecht sold 40,000 shares (0.06 percent of the total shares outstanding) for a total of $659,599, or $16.49 per share. Ruprecht remains the largest direct shareholder in the company, with 425,350 shares, according to SEC filings. “Mr. Ruprecht’s sale represents approximately 5 percent of his equity holdings and was done entirely for liquidity and diversification purposes,” said a Sotheby’s spokesperson. Another major stockholder is hedge fund manager John Angelo, who runs the Angelo Gordon fund and has been adding to his stake in Sotheby’s over the past several months. As of June 10, Angelo owned 340,000 shares, up from 175,000 shares as of March 16. Angelo also holds a seat on the company’s board of directors. As of June 30, the largest institutional shareholder is Barclays Global Investors UK Holdings, with 3.8 million shares, or about 5.7 percent of the total outstanding.

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