Lone Star lost the vote to unseat Hatfield Philips on the loan servicing mandate for the Windermere XIV CMBS, after a contentious single bondholder’s vote was sufficient to block the resolution to install Hudson Advisors.
HSBC Asset Management voted against the resolution to replace the loan servicer for the remaining seven loan legacy Lehman Brothers securitisation, which was sufficient for the vote to come in at 74.93% – fractionally beneath the required 75% for the motion to carry.
But the vote is mired in controversy as HSBC AM, which owns class A bonds within Credit Suisse’s re-securitisation vehicle – Credit Suisse European Mortgage Capital – registered its vote for a greater proportion of the bonds than it owns.
Lone Star will seek a re-vote in the New Year as it continues its fight to remove Hatfield Phillips in favour of its own loan servicing subsidiary, Hudson Advisors.
HSBC AM voted against the motion on behalf of the entire €162.5m bonds in the segregated Credit Suisse re-securitisation – known as the Re Remic vehicle – but only owns €128.5m, with the balance retained by Credit Suisse which was in favour of the installation of Hudson Advisors.
The veracity of HSBC AM’s vote is also more broadly in doubt as it was without instruction. The Re Remic Issuer is a special purpose vehicle which should have given instruction on how to vote, not HSBC or Credit Suisse.
There is a lot at stake for both Lone Star and Hatfield Philips over the fate of the remaining €722.2m seven-loan Windermere XIV CMBS.
Lone Star owns most of the €223.02m junior bonds below the class As and the B-Loan, and will likely secure a quicker and higher return of its capital through Hudson Advisors’ workout strategy, while the Windermere XIV loans represents significant revenue for Hatfield.
The Windermere XIV CMBS has a concentration of value in three of the seven loans, which accounts for €618.81m, or 85.7%, of the outstanding balance, secured by properties in France, Finland and Italy.
The €256.22m Haussmann loan is secured by Les Docks Lyonnais’ 267,000 sq ft Société Vendôme Haussmann office building in Paris’ central business district.
Fortress Investment Group’s unlisted closed–end real estate fund, Torre RE Fund I, is the borrower behind the €252.23m Fortezza II loan, with an 11-strong Italian offices portfolio.
The €110.39m Sisu loan is secured by a remaining 137-strong predominantly retail Finnish portfolio, owned by Goldman Sachs Whitehall Street Real Estate Funds and Niam, the Northern European real estate private equity firm.
On Tuesday last week, ahead of Friday’s bondholder vote at Allen & Overy’s offices, Hatfield Philips held a conference call at Paul Hasting’s offices in which Lone Star challenged the current workout strategy.
The conference call was a fascinating insight into the more often private dialogue between bondholders and loan servicers with Lone Star seeking clarity on the fees paid to Hatfield by borrowers in primary servicing in exchange for loan extensions.
Lone Star, along with some other bondholders, was unhappy at Hatfield’s practice of charging extension fees to borrowers which were paid to Hatfield, not bondholders.
In the Susi loan, Hatfield granted the three successive 12-month extensions from April this year, which will be extended if agreed de-leveraging hurdles are met.
Lone Star asked of the Susi loan: “Can you tell us about the extension fees which were charged?”
Hatfield replied: “There was a fee at the outset of €600,000 which was paid for by the borrower… and there will be an additional fee of €200,000 if next extension is granted, and there will be a final fee of €100,000.
“[The fees] go to Hatfield… an extension fee, quite frankly, is part of the strategy because it increases the cost of the extension to the borrower.”
“But the fee goes to Hatfield,” replied Lone Star.
“Yes, but the borrower pays it, if the loans were in special servicing then the noteholders would pay.”
The argument reflects the often blended interests which persist throughout CMBS.
The Susi loan extensions were agreed in April, three months after it became public that Lone Star had acquired the Cerep III loan, also known as The Carlyle Loan, which was secured by Windermere XIV bonds.
Lone Star’s economic interest in the controlling class of junior Windermere bonds would have been a signal to Hatfield Philips that, in all likelihood, the private equity firm would seek to install its own loan servicer, Hudson Advisors.
In April, Hatfield agreed the three 12-month loan extensions with €600,000 paid by Goldman Sachs Whitehall Funds and Niam for the first extension, as confirmed last Tuesday.
This restructuring was simultaneously in the economic interest of Windermere XIV bondholders and Hatfield.
If Hatfield transferred the loan into special servicing, it would have received higher fees – €1.3m plus 23 bps, compared to the aggregate €900,000 fees secured through primary servicing – but Lone Star was lingering ready to exercise its controlling class rights to remove them.
But the restructuring was also favourable for bondholders, while Goldman Sachs Whitehall Funds and Niam paid Hatfield’s extension fees.
Hatfield maintains that the overall credit quality of the portfolios have been improved for the benefit of the noteholders, through the extensions sanctioned.