Spencer Across the Bond Layers: Why B and D Get Relief While H Remains Constrained

Across the Bond Layers

The main article already made the broader point: Spencer’s asset value rose, but free cash is still trapped inside the collateral structure. This continuation isolates where that gap becomes most concrete. Not all of Spencer’s bond series live inside the same economics, so they are not receiving the same capital-allocation treatment.

That is the core issue. Series B, D, and Z sit on company-level covenants. At that level, an improvement in net debt to CAP can lower coupons, and management can also approve opportunistic buybacks when prices look attractive. Series H and V sit on Harrison II, where each dollar first has to pass through LTV tests, trust-account mechanics, and partial early redemptions. Spencer is no longer dealing with one debt market. It is dealing with several debt layers, each with its own discipline.

The non-obvious finding is that relief in Series B and D does not mean stress at Harrison II has been resolved. It means the opposite: the structure is fragmenting more clearly. At December 31, 2025, net debt to CAP stood at 67.0%, enough to support a rate step-down in Series B and D. On that same date, Series H still sat at 77.8% LTV, above its 77.5% additional-interest trigger and only 2.2 points below the hard 80% ceiling. Series V was already down at 68.3%. The story is therefore not just “general” versus “secured” debt. It is also the difference between two very different collateral situations inside the same project family.

That is what makes the capital-allocation decision important. In February 2026, the board approved a buyback plan of up to USD 15 million in Series Z, D, and B. At the same time, Series H was topped up with another USD 2 million at year-end 2025 and another USD 1 million in March 2026 into its trust account, and it still needed a deed amendment just to allow a collateral sale so long as the full net proceeds were deposited into trust and used for partial early redemption. This is not a contradiction. It is a map. It shows where cash is still flexible, and where it remains ring-fenced.

One Layer of the Company, Another Layer of the Collateral

The right way to read the debt stack is not by maturity. It is by the type of restriction each series places on cash movement.

This chart explains why relief arrived first in the company-level series. On CAP, Spencer has already moved back inside the line. That does not mean the entire structure is calm. It means the part of the structure governed at the company level got breathing room first.

This is where the real split appears. The issue in Series H is not merely that it is secured. It is that it sits too close to a threshold that controls where every dollar goes. Series V is already in a very different place.

Why B and D Get Relief, but Not on Equal Terms

March 2026 gave the market a positive signal, but not a uniform one. In its March 26, 2026 immediate report, the company said Series B and D would both benefit from a 0.5% annual rate reduction because net financial debt to CAP stood at 67.0% on the examination date. That is real relief, but it does not carry the same quality in both series.

In Series B, the company fixed only one part of the problem. The same immediate report explicitly states that even while net debt to CAP has been repaired, the company still does not meet the net financial debt to adjusted NOI covenant. The annual report already shows the number clearly: 28.0 versus a ceiling of 19. So Series B does get a rate step-down, and for future interest periods starting September 30, 2026 the annual rate is meant to fall to 5.65%. But that does not mean the general debt layer is now fully supported by NOI.

In Series D, the picture is cleaner. In the annual report, the company is already in line on net debt to CAP, on adjusted NOI, and on the rest of the relevant tests. So when the March 26, 2026 immediate report lowers the rate, it looks less like a technical repair and more like a return to the normal coupon framework. Starting with the interest period beginning August 31, 2026, the annual rate is meant to return to 7.24%.

That distinction matters because the bond market tends to flatten “lower coupon” into “problem solved.” That is wrong. In Series B, the relief improves the pricing schedule, but it does not erase the fact that NOI is still too thin versus this debt layer. In Series D, the relief is much closer to a real repair because it comes with wider room against the operating tests.

So B and D are not telling the same story. Both received a 0.5% benefit, but only one currently looks like a layer that has genuinely moved back into a more comfortable zone.

H: Cash Is Moving, but It Is Not Yet Free

If Series B and D are benefiting from the repair at the group level, Series H still shows what happens when that same value runs into hard collateral discipline. At year-end 2025, Series H LTV stood at 77.8%. That is still below the hard 80% ceiling, so there is no immediate-acceleration event. But it is above the 77.5% line that adds extra interest. That is the difference between a stable layer and a layer still operating with a warning light on.

The company itself acknowledged that pressure. At the end of 2025 and again in March 2026 it transferred another USD 2 million and then another USD 1 million into the Series H trust account, explicitly as an extra safeguard because USD/ILS volatility affects the LTV calculation. The amount is not huge in absolute terms. The signal is. When the company is adding collateral support simply to manage FX-driven LTV pressure, Harrison II Rental cash is still far from fungible.

The February 2026 presentation made the problem even clearer. At that point, the Harrison II Rental asset company had two signed agreements to sell commercial condo units for aggregate consideration of about USD 11.5 million, and management was negotiating another unit for roughly USD 5.75 million. But the same presentation says outright that the sharp move in the dollar created an LTV constraint that did not allow those sales to go through. Demand was not the bottleneck. The collateral structure was.

And the chosen fix did not liberate the cash upward. The amendment approved on February 26, 2026 says a pledged asset can be sold only if the full net sale or financing proceeds, after deducting the portion earmarked for improvements to the sold asset, are deposited directly into the trust account and used in full for a partial early redemption of Series H by the end of the following quarter. No surplus from that transaction is released to the company. That wording is crucial because it shows that the sale serves the debt layer first, not the group’s free cash pool.

That is exactly what happened next. On March 25, 2026 the company completed a sale of one commercial condo unit in Harrison II Rental for about USD 7 million. Out of that amount, about USD 1.47 million was earmarked for improvements to the sold asset, and about USD 5.3 million was deposited into the Series H trust account for partial early redemption. This is not free cash. It is cash that already has an assigned destination.

Series V matters here as a contrast. At year-end 2025, its LTV was already down at 68.3%, and during 2025 the company executed four partial early redemptions totaling NIS 232.6 million par value following condo-unit sales in Harrison II Condo. Even inside the secured bucket, cash can move. But it moves only after the asset sale has closed, the funds have already entered trust, and the debt has already begun to come down.

That is the real difference between Series H and Series V. Both sit inside Harrison II. Only one still needs deed amendments, incremental trust support, and close LTV management before a sale can even happen.

The Buyback Does Not Cancel the Pressure. It Exposes It.

Against that backdrop, the buyback plan approved on February 24, 2026 reads differently. The board authorized a wholly owned controlled entity to repurchase up to USD 15 million of Series Z, D, and B between February 25, 2026 and March 31, 2027. The stated rationale was that bond prices were attractive, that repurchases could reduce liabilities, lower leverage, and generate capital gains, all subject to cash flow and liquidity.

It is easy to read that as a contradiction. If Series H is still tight, why buy back Z, D, and B? But that is exactly the point: the buyback plan is not trying to repair the entire debt structure. It is taking advantage of the fact that the portion of cash still flexible at the group level can be deployed into series where there is no mechanism that forces every dollar first into a dedicated trust account.

Series Z makes that especially clear. It was included in the buyback plan even though at year-end 2025 its net debt to CAP stood at 67.0% versus a 71% ceiling, and adjusted NOI stood at USD 54.4 million versus a USD 27 million floor. This is not a series that entered the plan because it was in distress. It entered because it belongs to a layer that management can still optimize through market pricing.

So the buyback is not a sign that “the problem is behind us.” It is a different sign: management is separating cash that can still be used for bond-price arbitrage from cash that must remain attached to collateral. As long as Series H still requires trust before freedom, buybacks in the other series are an optimization move, not a full release of trapped value.

Conclusion

The most important takeaway from this continuation is that Spencer does not have one debt curve. It has several debt layers with different degrees of freedom. Series B and D are now benefiting from the improvement in net debt to CAP. In Series D, that already looks like a relatively clean repair. In Series B, it is still only partial, because the debt-to-NOI gap remains unresolved.

Series H, by contrast, still does not live in a world of free cash. It lives in a world of collateral. It remained above the LTV line that adds interest, it needed more cash deposited into trust, and it needed a deed amendment that allows asset sales only if the full net proceeds remain with the trustee and go to early redemption. That is progress, but it is progress inside the closed circuit of the series itself.

That is also the read for the next few quarters. If Series H LTV falls below 77.5% without further defensive deposits, and if Series B begins to close its NOI gap as well, then the divide across the layers will start to narrow for real. Until then, relief in Series B and D should be read as targeted relief in the corporate layers, not as proof that all the value inside Harrison II has already become accessible cash.