TPG and Patron Capital have won control of the Uni-Invest securitised debt after Class A noteholders this morning rejected Valad Europe’s consensual bid and approved the private equity joint venture partners’ credit bid within the last hour at Baker MacKenzie’s Amsterdam offices.
In the end, the dual-track process went according to logical economic interests between the noteholders – and averting the nightmare zombie scenario – with the class Bs through Ds all approving Valad’s consensual bid, while the class A’s rejected it.
The class A noteholders, at 2pm Central Eastern time, approved the TPG and Patron’s credit bid, represented by 93.6% of the entire class, which leaves all €243m of junior notes, the class Bs through Ds, with nothing.
If any class As no longer want to participate in the new notes, they have an option to instead receive an additional cash consideration of 35% of the principal amount outstanding of their notes.
The deadline for noteholders to indicate which of these two options they individually want is 5pm Central European time, 24 April 2012. Noteholders which do not meet this deadline will receive only the 40% initial payment and not either of the new notes or the additional cash consideration.
The delivery of a positive outcome from the dual-track strategy – devised by Eurohypo, the special servicer on the OPERA Uni-Invest CMBS, and Cairn Capital, Eurohypo’s adviser alongside the class A noteholder – paves the way for the structure to be used as a template for future CMBS restructurings in which ultimate choice is returned to those “in the money” rather than a function of where controlling class is granted across inconsistent loan documentation.
For TPG and Patron Capital, their promised investment of €144m in new equity should be implemented tomorrow, alongside the re-pricing new class As to 300 bps plus 100 bps PIK, plus an upfront fee of 25 bps, financed effectively by a 60% LTV senior loan from the class As, which reduces the outstanding €358.8mn balance to €215.68m.
But the joint ventures have structured their proposal to allow for two 12-month extensions, which can be optioned if the outstanding class A balance is not below €180m.
Prior to the vote, many analysts and uninvolved bondholders believed it was too difficult to call given that many B through D noteholders were also in the class As, and were pro the Valad consensual bid.
But, ultimately, the immediate de-risking by 40% proved the decisive attraction in TPG and Patron’s bid who now take control of the portfolio and replace the existing underperforming management.
For the two private equity partners, the real work starts now. The 203-strong portfolio is comprised of 142 offices, 54 warehouses and seven retail outlest, which provide an annual rent of €62m. The portfolio has a blended vanacy rate of 35%, but this masks wide differences, and the occupany rate could fall further – to just 50%, by the end of this year.
TPG and Patron plan to aggressively asset management all assets with at least 70% occupancy, which are estimated to reflect around 65% of the portfolio; sell assets with a weighted average lease length of less than five years, which reflects 10% of the portfolio, and with a vacancy above 50%, which reflects 21% of the portfolio, and redevelop around 4% of the portfolio into hotels, residential and student housing.
With every asset sold – as long as it is above a 130% debt allocation written into the term sheet – would entitle Patron and TPG to 48% of the sale proceeds, while 52% is returned to bondholders. The properties will be held in a special purpose vehicle, Utrecht Holdings Sarl.
No doubt some noteholders will be eager to exit their exposure entirely will look to trade out their outstanding position, with the low 90s predicted in secondary markets for the class As, whether there is enough liquidity generated by willing buyers, remains to be seen.
Pieter Roozenboom, CEO at Uni-Invest, said: “We are delighted with today’s outcome and we look forward to our partnership with TPG and Patron. TPG and Patron are respected private equity firms that have extensive experience in the real estate market in which Uni-Invest operates. We feel that these two new partners can truly add value to our business and help us in further optimising our portfolio and servicing our clients.”
As for Valad Europe, the asset manager insists they will look to compete in future in other similar CMBS debt restructurings.
Marty McCarthy, CEO of Valad Europe, said: “Whilst we are pleased to have secured the positive vote of the class B, C and D Uni-invest noteholders for the Opera Finance consensual restructure proposal, we were disappointed not to have secured the 75% threshold required to secure the A Noteholder’s positive vote.
“We are however, grateful for the A Noteholders for having selected Valad Europe as their preferred asset manager for the consensual restructure option and we continue to believe that consensual restructuring of future CMBS defaults offers a credible alternative to investors who wish to retain control post restructuring, whilst allowing the value of their underlying asset collateral to be maximised and disposed of in an orderly manner.
“We look forward to working with other CMBS Noteholders in the future, as we have done in the past on the Kefren and ECREL mandates, to provide genuinely innovative solutions to their restructuring needs. Our platform of 22 local offices in 12 European countries ensures that Valad Europe has the local knowledge and expertise on the ground capable of extracting maximum value from the underlying assets in these situations.”