Lone Star’s efforts to oust Hatfield Philips as the master servicer on all the loans in the pan-European Lehman Brothers CMBS, Windermere XIV, will be determined this Friday, in a battle for control which exemplifies legacy European structured finance at its most complex.
Class A bondholders in the outstanding €722.2m seven-loan Windermere XIV CMBS will vote on Friday over Lone Star’s proposals to replace Hatfield Philips with Hudson Advisors, the servicer owned by Lone Star, to manage the work out and unwinding of the securitisation.
Tomorrow, ahead of Friday’s crucial vote, Hatfield Philips will make its case to class A noteholders to argue that it should remain in place as primary and special servicer of the seven loans, which are secured by 164 commercial properties across Finland, Germany, Italy and France.
Initially, Lone Star acquired most of the Windermere XIV bonds in January, after the global private equity firm bought the Carlyle loan in the Excalibur collateralised debt obligation (CDO) from Germany’s Bundesbank in January.
The Carlyle loan, also known as Cerep III, was the outstanding balance of an original €586.3m senior loan Lehman Brothers extended to The Carlyle Group on 30 May 2008, which financed Carlyle’s acquisition of a portfolio of Windermere XIV bonds from Lehman Brothers.
To unwind its position, The Carlyle Group traded the portfolio of Windermere XIV bonds in exchange for writing off the Cerep III loan. Lone Star lined up Credit Suisse to buy the outstanding class As, and retained all the junior securitised classes as well as the B-note.
Credit Suisse traded the class A Windermere XIV bonds in the secondary markets, including a re-securitisation of €99.88m worth of the class As in new issuance called Credit Suisse European Mortgage Capital, selling the €78.98m re-securitised A1 class.
Lone Star has retained all the junior securitised notes bought – from class B to F – as well as the three Windermere XIV B-notes with a combined outstanding value of €19.3m, which were separately packaged into the Excalibur CDO.
The outcome of Friday’s vote among class A noteholders will likely dictate different unwinding strategies for the seven CMBS loans.
Currently, only one of the original eight loans has repaid – the €17.14m Harbour loan – while just one is in default: the €38.64m Baywatch loan, which transferred to special servicing on 15 October this year after failing to keep the outstanding balance below the prescribed €27m.
Other loans like Sisu, Queen Mary or originally Baywatch have been simply extended by Hatfield Philips, pushing back the recovery timeline.
The Baywatch loan reflects 5.3% of the outstanding pool. Under the terms of the offering circular, sequential repayment is triggered if: more than 15% of outstanding loans by amount have suffered payment defaults; three or more loans suffer a payment default; or a principal loss in any loan occurs.
Sequential repayment would ensure that class A bondholders are repaid in entirely ahead of all junior noteholders, which would preclude Lone Star from receiving capital until class A bondholders have first been repaid in full.
CoStar News understands that although the sequential trigger not being breached would benefit Lone Star’s junior bondholder positions, the Hudson Advisors-managed strategy would likely return capital back to bondholders quicker than the current extension strategy envisaged by Hatfield.
Hatfield Philips’ bondholder meeting tomorrow morning, brought forward 24 hours from Wednesday at Berwin Leighton Paisner’s offices to tomorrow at Paul Hastings at 10am, will outline:
- Historic information covering previous Windermere XIV loan activity;
- an update of the current status and performance of each individual loan;
- Review of potential future scenarios.
Following the meeting, Hatfield Philips will make its presentation public.
Then on Friday morning at 10.30 am at Allen & Overy’s offices, counsel for Lone Star, the extraordinary resolution will be voted on to replace Hatfield Philips with Hudson Advisers, at which for the resolution to pass, at least 50% of outstanding class A noteholders need to vote with a margin for the motion of at least 75% of class A noteholders.
Class A CMBS bondholders are once again in the driving seat to choose between competing workout strategies in an unusually complex European securitisation.
All parties declined to comment.
CoStar News undertook a comprehensive three-part analysis on Excalibur in February which can be viewed here: Part I – The Birth of Excalibur; Part II: Excalibur Unmasked; and Part III: Excalibur’s CMBS bonds and B-notes.