If you are a normal person, you are interested in real estate, some of it will be residential because you need to live somewhere; some of it will be big commercial buildings because they are big and newsworthy in your community. Real estate development is based on credit and one of the critics best movies, one that comes out every Christmas season is Its a Wonderful Life. The story is George’s works for a Savings and Loan Company and his brother misses a payment. Mr. Potter tries to foreclose. George does not have the money and sinks into despair and thinks the insurance money on his death would solve the problem. He tries to kill himself (but no insurance company would pay on it), is saved by an Angel and sees the good he has done so far in his life. The community rallies around George and the payment is made and the ending is happy. The story about not making a payment and trying to find money to make it is not an unusual story. In real estate, there are multiple stories, it is usually the very large ones make the news.

In an article by Scott Murdoch, Xie Yu and Clare Jim of Reuters, the second largest developer in China is Country Garden. Similar to the largest developer, the second largest company is having problems making payments on its debts including bonds. The difference is when payments are missed for bondholders, they can and do sue to be paid something on the dollar.

Two bondholders have emerged seeking discussions about a potential debt restructuring package with either Moelis or PJT as financial advisors. The group holds about $2 billion of the debt-laden Chinese property developer’s offshore bonds.

Rating agency Moody’s said they would downgrade Country Garden’s corporate family rating if things get worse. The senior unsecured debt is at the lowest end of the scale or C.

The one thing good about developers, particularly large ones is somewhere they have assets such as land to be developed in the future. County Garden’s Australian subsidiary is selling an undeveloped housing plot of land in Melbourne to Singapore’s Fraser Property for $250 million.

Country Garden has $11 billion of outstanding offshore bonds and could trigger one of China’s biggest corporate restructuring.

Country Garden has appointed Houlihan Lokey, China International Capital Corp and law firm Sidley Austin as advisors to examine its capital structure and liquidity position to formulate a solution.

According to Duration Finance. Country Garden’s bonds were selling between 4.39 or 5.33 cents on the dollar.

Linking to dividend paying stocks, access to credit and been able to repay bonds is a fundamental part of your homework to investing in a company. If the company can repay its loans, then the bonds holders will buy more bonds. In the event of bankruptcy, bondholders get paid first, equity is last. It is wonderful to look at big flashing developments, but ask do they bring in rents or revenue to pay back the debts? If yes, then you need to do very little with your investments.

There are more questions than answers, till the next time – to raising questions.