Europe’s CMBS loan maturity run-off in 2013 is the single largest calendar year for maturities in the history of the capital markets funding tool since inception on this side of the Atlantic. CoStar News continues its rundown of the 10 largest loan maturities.
To put the scale of this year’s maturity profile into context, prior to Deutsche Annington’s GRAND restructuring and refinancing agreement there was as much as €22.85bn scheduled to mature.
This is almost as much as the subsequent four years combined – from 2014 through to 2017.
Even discounting the GRAND CMBS, the €18.2bn maturity profile dwarfs any of the individual subsequent six years, which are: €8.74bn in 2014; €4.96bn in 2015; €4.93bn in 2016; €4.87bn in 2017; €1.38bn in 2018; and €2.53bn in 2019.
The next five major CMBS loan maturities reflect the diversity of challenges and opportunities across the full spectrum of the European real estate asset class.
Furthermore, these next five maturing deals offer a much greater transparency to market participants and observers than is typically provided in the broader – and much deeper – bank de-leveraging that is still considered to be less than halfway through.
This second part follows on from yesterday’s top five largest European CMBS loan maturities, which can be seen here – and will be updated through the year as each refinancing and restructuring develops.
6. Plantation Place (REC 5): Moise Safra locked in refinancing talks with lenders
Borrower: Moise Safra
Issuing banks: Rothschild in 2007
Remaining collateral: Plantation Place
Remaining balance: £417.9m securitised (whole loan: £442.9m)
Loan maturity: 13 July
Moise Safra, the Brazilian banking mogul which acquired Plantation Place last spring, is close to agreeing a £250m senior debt refinancing for the trophy asset in time for this July’s loan maturity, as the lifespan of one of Europe’s most eventful CMBS deals draws to a natural closure.
With at least two permutations still in play, the Safra family is thought to be considering a £250m seven-year loan with either one or two lenders, with pricing around 275 to 300 basis points, given the assets quality.
Such relatively cheap pricing in this market is yet a further reminder of a fructifying competition to finance the best quality assets from lenders, old and new.
The interest rate swap is matched to the loan’s maturity in July 2013, therefore there will be no onerous breakage costs.
The refinancing will reduce the LTV on the 550,000 sq ft office block from 88.6%, on a current whole loan basis, to a senior-only LTV 50%, based on a £500m valuation. Assuming the same valuation, this will require a considerable equity injection by Safra when the loan is refinanced.
The REC 5 CMBS was a seminal European securitisation in the post-global financial crisis era. It was in this transaction that bondholders realised that an LTV covenant breach was not in itself sufficient to trigger enforcement.
No transaction encapsulated the divergence of motives between noteholder classes within the capital structure quite like REC 5 CMBS – from which the phrase “class warfare” was coined.
This coincided with one of Delancey’s two ill-fated attempts to acquire the trophy asset by amassing a blocking class B stake to reject a Brookland orchestrated restructuring proposal.
Bondholders realised that the structural features of the Rothschild-issued CMBS deal, and limitations in the documentation, restricted their rights.
But with hindsight, the limitations of the deal structure ironically has proved the value saver for junior bondholders and junior lenders, as the restrictions prevented a fire sale and now bondholders will benefit from full recovery in the aftermath of the recovery in prime City offices.
Safra paid around £40.5m last Spring to buy out the four-strong investor consortium’s equity – Clerical Medical, Schroders, Starion and Stobart Group – which cured the £20m LTV breach at the time.
7. Fordgate Commercial: Fordgate’s £300m Fox portfolio is a candidate for disposal
Borrower: Fordgate
Issuing banks: Morgan Stanley in December 2006
Remaining collateral: 21-strong UK-wide Fox portfolio
Remaining balance: £261.89m securitised (whole loan balance: £411m)
Loan maturity: 21 October
Fordgate, the UK privately-owned property company of Moises and Mendi Gertner, is thought unlikely to secure a refinancing of the 21-strong UK regional secondary Fox portfolio, leaving the probable exit either through consensual disposal or receivership.
Fitch Ratings estimated the current senior and whole loan LTV at 87.5% and 138.6%, respectively, which values the portfolio at £299m, based on the current outstanding balances.
The outstanding senior balance was £261.89m at the October IPD, while the two non-securitised B and C loans, take the outstanding whole loan to £411m.
Both Fordgate, the UK privately-owned property company of Moises and Mendi Gertner, and the loan servicer, Morgan Stanley, are thought to have received proposals from financial advisers to help with a restructuring strategy.
Fitch Ratings’ £299m-valuation four months ago reflects a 38% value decline from the £482.9m valuation ahead of the October 2006 agency securitisation by Morgan Stanley.
The 2,449,189 sq ft 21-strong Fox portfolio comprises large secondary assets let to financially strong tenants with the assets generally geographically well-located within their respective submarkets, especially those in Aberdeen.
Overall, the portfolio has a vacancy rate of 24.05%, or 589,148 sq ft, which is up from just 3% at closing of the CMBS. There are 116 tenants which deliver £25.13m pa, as at the October IPD.
Fox has 11 offices, six motor showrooms, two retail parks, an empty distribution centre and a multi-let retail site. Across the portfolio, 11 assets are fully let, six properties are above 85%, three are between 60% and 75% and there is the vacant distribution centre.
More than 55% of the lease income is due to expire over the next four years.
Fitch wrote that there has been “limited evidence that the sponsor, Fordgate, is willing to inject the significant amounts of capex required to improve the assets’ quality.
“Instead it appears that the sponsor’s approach to value preservation is via trying to entice tenants to renew leases. Although this strategy may prevail and only minimal tenant incentives may be required to keep stable occupancy levels, the risk is that if tenants do leave the assets will remain non-income producing for a considerable time.”
Standard & Poor’s wrote: “Given the size and quality of the portfolio, if the loan fails to refinance at scheduled maturity, we consider that the three-year tail period until note maturity is likely to be sufficient time for a loan workout to repay the notes in full.”
8. Vanwall Finance: Toys R Us owners eye high yield bond refinancing strategy
Borrower: Bain Capital, KKR, and Vornado Realty Trust
Issuing banks: Barclays Capital and Deutsche Bank in February 2006
Remaining collateral: 30 UK regional Toys r Us stores and 1 distribution centre
Remaining balance: £417.9m securitised (whole loan: £442.9m)
Loan maturity: 12 April
Bain Capital, KKR, and Vornado Realty Trust are understood to be considering refinancing their £405m debt secured by a portfolio of 31 UK Toys R Us stores, with a high yield corporate bond.
The strategy, which could be subsequent to an initial shorter-term restructuring of the CMBS loan, was securitised in the Vanwall Finance CMBS.
The high yield bond strategy would replicate the refinancing strategy adopted by the three-strong toy retailer’s owners in the US, where a $350m five-year high-yield corporate bond was announced 10 months ahead of a $400m debt maturity.
Debt investors and analysts have commented that migration of debt refinancing into a more traditional corporate bond territory is naturally suited to the operating company business model, drawing parallels with the £525m high yield bond issued last autumn for Terra Firma’s acquisition of Four Seasons, the UK care homes operator.
Typically, an operating company can look to secure as much as four-to-five times of annual EBITDA in corporate debt financings.
Bain Capital, KKR, and Vornado Realty Trust’s UK securitised Toys R Us portfolio is comprised of 30 stores and one distribution centre, with a £355.5m senior loan and a £60.7m junior loan originated by Barclays Capital and Deutsche Bank.
The senior loan was securitised in the Vanwall Finance CMBS, which has an outstanding balance £345.7m and a remaining £59.85m junior loan.
RBS, which was a joint supporting bookrunner on the Vanwall Finance CMBS, originated the £60.7m junior loan and did not manage to exit the position before the global financial crisis froze market liquidity.
As a result, RBS flipped the junior loan into Project Isobel. Therefore, if any short term restructuring talks emerge both RBS, and its minority joint venture partner Blackstone, will have a seat at the table.
In a SEC filing, dated to December 3, 2012, Toys R Us Inc, reported: “We have commenced discussions related to these facilities with various lenders and advisors and are considering a number of refinancing options, including whether to use in-country liquidity and refinancings through amend and extend transactions, or debt issued by our European subsidiary, Toys “R” Us-Europe, LLC.
“The use of any such refinancing option is dependent upon the availability of commercially reasonable terms and whether such refinancing options would be a commercially reasonable use of the company’s available liquidity.”
For Bain Capital, KKR, and Vornado’s $350m five-year high-yield corporate bond in the US, the consortium appointed JPMorgan and Goldman Sachs as joint lead bookrunners, supported by Bank of America Merrill Lynch and Deutsche Bank.
9. Netcare strengthens GHG opco equity ahead of swap-drowned Theatre CMBS restructuring talks
Borrower: General Healthcare Group
Issuing banks: Barclays Capital
Remaining collateral: 70 UK private hospitals
Remaining balance: Theatre No.1 £374.24m; Theatre No.2 £249.49m (plus £280m non-securitised senior and £650m junior, taking total debt to £1.55bn)
Loan maturity: 15 October 2013
Netcare, the listed South African care home operator, announced the acquisition of Brockton Capital’s equity stake in General Healthcare Group (GHG) for £11m, increasing its ownership in the operating company to a majority position ahead of imminent crunch refinancing talks with creditors.
Simultaneously, Netcare sold “certain interests” in GHG PropCo 1, which owns the 36 care homes for which the debt is securitised in Theatre No. 1 and Theatre No. 2, to joint venture equity partners APAX Partners and London & Regional.
Brockton Capital, also the former property manager, no longer has any involvement with GHG, reducing the enormous number of interested parties in the refinancing talks ahead by one.
The net effect of these transactions is an increase in Netcare’s equity stake in ProCo 2 and the GHG opco, to 53.72%, while the South African care home operator’s stake in GHG PropCo 1 remained at 50.0%.
Netcare’s increasing equity stake in the operating business comes ahead of refinancing talks behind the property company, which has an aggregate £1.55bn outstanding debt pile.
This aggregate £1.55bn debt is comprised of £374.24m and £249.49m outstanding in the Theatre (Hospitals) No. 1 and No.2 CMBS, respectively.
In addition to this combined £623.73m across two separate CMBS transactions, the UK private hospital portfolio is secured by a further £280m in non-securitised senior debt and around £650m in junior debt.
Against this aggregate £1.55bn outstanding debt, which matures in mid-October, Netcare, the majority shareholder in GHG, announced in its annual results last November that the aggregate value of the hospital portfolio was £1.45bn.
But given that the property portfolio is fitted out specifically for a hospital tenant, a traditional property valuation arguably is an insufficient guide to the assets’ intrinsic real estate value.
Deepening the complexity is the presence of that real estate loan menace: the long-dated interest rate swap.
Nestled super senior, is an interest rate swap liability of £537.4m, which, according to Netcare’s November annual results, runs to 2032 – bizarrely one year beyond the legal final maturity of the Theatre No. 1 and No. 2 notes.
Regardless of whether or not this is actual or a reporting error, Netcare’s stated swap liability of £537.4m against GHG PropCo 1 – covering the two Theatre CMBS deals – breaks value deep in the outstanding junior debt.
Quite where, depends upon the hospital portfolio’s value.
Capita Asset Services, the master servicer across the two Theatre CMBS transactions, last week appointed PricewaterhouseCoopers (PwC) to conduct an independent business review, which among other things, will seek to give an independent weighting to the portfolio’s value.
PwC’s mandate will also include assessing the tenant’s operations to fully assess the leases; the strength of the tenant covenants with the aim of understanding the value of the underlying assets.
Separately, Lazard & Co has been appointed as Capita’s financial advisor to aid with upcoming refinancing talks with GHG, its owners Netcare, London & Regional and APAX Partners, as well as the non-securitised senior and junior lenders.
In a competitive beauty parade carried out by Capita, Oriel Securities and Ernst & Young were also shortlisted by Capita.
The junior lenders, which include KKR, have appointed Gleacher Shacklock, the restructuring advisory firm, as their financial adviser and Milbank, Tweed, Hadley & McCloy as legal counsel.
Capita will share the information derived from the PwC independent business review with the junior lenders to aid cost efficiencies.
Talks between all parties are expected to start soon, with the likelihood that there will be an extension driven by a possible junior debt-for-equity swap, which could well be KKR’s play.
Speaking at last November’s annual results for Netcare, chief financial officer Keith Gibson said: “The GHG propco board is fully focused on achieving a solution to this debt refinancing.
“This solution, however, will be very complex… Netcare will seek to engage responsibly with debt holders to find some form of accommodation in forms of a restructuring or a refinancing on this debt.
“However, what Netcare will not do is jeopardise our South African businesses or compromise the financial security of our South African operations.”
10. Prospective buyers of former Treasury Holdings Dublin office portfolio circle
Borrower: Real Estate Opportunities
Issuing banks: Eurohypo
Remaining collateral: 15 Dublin offices, 1 shopping centre in Cork
Remaining balance: €375 senior loan (whole loan: €460m)
Loan maturity: 15 January
Northwood Investors’ acquisition of the nominal €85m junior loan from NAMA sets up an intriguing legal endgame for the much sought-after Dublin office portfolio, formerly owned by Treasury Holdings subsidiary Real Estate Opportunities.
CoStar News revealed that Northwood Investors paid single-digit cents in the euro for the out-of-the-money junior loan earlier this month, effectively, for a seat at the table at the restructuring talks on the €375m Opera Finance (CMH) CMBS loan with servicer Hypothekenbank Frankfurt, the rebranded Eurohypo “bad bank”.
The tactical value for Northwood Investors is that no consensual restructuring can take place without their agreement as the junior lender. But this far from put the private equity investor in pole position to acquire the 16-strong Dublin office pool.
Northwood Investors will have competition from the long list which sought to acquire the junior loan for the same purposes: Apollo Global Management, Kennedy Wilson, TPG, Partners Group and, possibly, Blackstone.
The prize is an attractive one: this portfolio, currently valued at €270.41m, is at the most prime end of the Irish market, with the City office market llikely to be at the forefront of any eventual rebound in capital values.
Bondholders in the Opera Finance (CMH) are awaiting a restructuring proposal but with legal final maturity not until January 2015, so there is time to extend if required.
The unwinding of the CMBS, and the fate of the Dublin office portfolio, could end up in Dublin’s courts contesting the validity of the loan documentation, and the junior lenders’ rights, given that Northwood has no likely recovery prospects on the loan under time scale available.
A legal precedent, if one is sought, would be reminiscent of Pearsanta’s eventually aborted attempt to secure a legal ruling at the High Court in London, based on its rights under the terms of the original Alburn REC 6 CMBS documentation.
Pearsanta, like Northwood Investors in in Opera Finance, is a speculative investor, having paid just £100,000 for an out-of-the-money junior loan which had a remaining balance of £11.7m.
If a legal judgment was sought to quash the junior lender’s rights in the transaction, any legal judgment would have to weigh-up the merits of the legal enforcement of contract, against simply acting in a fiduciary duty in line with the outstanding noteholders.
Brookland Partners, who advised NAMA on the sale of the former Anglo Irish Bank junior loan, is now advising Northwood Investors on its restructuring talks with Opera Finance bondholders and Hypothekenbank.
The 16-strong portfolio includes the one non-Dublin property, the 74,000 sq ft Merchant’s Quay Shopping Centre in Cork City Centre, anchored by Marks & Spencer.
The five next largest assets are:
- The Bank of Ireland Asset Management-leased five-storey office building at 40/41 Mespil Road in Dublin, which also has a long lease, expiring in June 2028. Bank of Ireland’s asset management subsidiary was sold to Kennedy Wilson last year;
- Crescent Hall, the four-storey office building in Dublin’s Mount Street, has a lease expiry today – ECDL ICS Skills – while RegTel’s lease expires at the end of the year and a second lease for the remaining office space expires with an October 2013 break clause;
- The 145,000 sq ft Stillorgan Shopping Centre in Dublin, anchored by Tesco, which has a break clause in September 2016, as well as Bank of Ireland and Vodafone;
- The 59,950 sq ft South Bank House – next to Google’s headquarters in Grand Canal Docks –which is Mason Hayes and Curran’s headquarters.
- The Warehouse three-storey office property in Barrow Street, on a 25-year lease expiring in 2025, let to Treasury Holdings itself.
CoStar Finance 