Morgan Stanley yesterday bolstered Northwood Investors’ 11th-hour bid to prize the former Treasury Holdings’ 16-strong Castle Market Dublin office portfolio from Kennedy Wilson and Varde Partners’ grasp by offering to buyout all Opera Finance (CMH) CMBS class A and B notes at par, CoStar News has learned.
The US investment bank’s offer to support Northwood’s bid mitigates concerns raised yesterday afternoon by 52% of the class As and 34% of the class Bs, by outstanding value, over the “potential negative impact the Northwood proposal may have” on the existing joint Kennedy Wilson and Varde Partners preferred bid.
Morgan Stanley, who is thought to be an existing bondholder in the fiercely-contested securitisation, and noteholders that choose not to take-up the buyout offer,will receive significantly re-priced margins.
In the class As, Morgan Stanley’s would benefit from a margin increase from 19 basis points to 375 bps, and in the class Bs from 30 bps to 750 bps over a four-year extended CMBS loan, under the Northwood restructuring proposal.
Also under the terms of the Northwood CMBS restructuring proposal, launched on Tuesday night, the risk associated with the latent capital gains tax liability which exits with the Kennedy Wilson and Varde Partners proposal is mitigated and would be cease to exist at the end of the proposed four-year loan extension.
Northwood Investors is believed to have yesterday submitted the full term sheet to Hypothekenbank Frankfurt, the special servicer, however CoStar News understands that this is yet to be distributed, due to the concerns outlined in yesterday afternoon’s RNS announcement.
The most significant of these concerns was the threat of Kennedy Wilson and Varde Partners walking away from its existing offer if the special servicer engages with the Northwood’s 11th-hour counter offer.
Noteholders are required to register their vote by the end of play today, if they wish to vote remotely.
For noteholders that wish to vote in person, a voting card must be requested from the paying agent, HSBC, by the end of play today, and attend the EGMs commencing at 9.30am on Wednesday June 26, at Allen & Overy’s One Bishops Square offices in central London.
Kennedy Wilson and Varde Partners is a €306m cash-only bid, inclusive of €5m in rental income, for the three months to 15 July, which ultimately would be paid back to the preferred bidders under the terms outlined.
Northwood’s counter offer, its second after losing a previous attempt at a restructuring proposal before Kennedy and Varde’s preferred bidder status was confirmed, amounts to €311m.
Hypothekenbank Frankfurt stated yesterday in its notice that if the extraordinary resolutions in favour of the Kennedy and Varde bid are passed, Ernst & Young’s David Hughes and Luke Charleton will be appointed as joint receivers over the Castle Market Dublin office portfolio.
If any of the CMBS classes do not pass the resolutions – requiring a 75% vote in favour in each of the four classes – the special servicer will seek to enforce the loan and sell the properties directly to Kennedy Wilson and Varde Partners, in the absence of a direction by the CMBS trustee to the contrary.
In the event of a loan enforcement, there could be a delay in the distribution of the sales proceeds due to a defect in the original offering circular which would trigger a sequential paydown – as a result, this could crystalise the full loss to the class D noteholders and deeper than current losses for the class C noteholders.
Whether the emergence of Morgan Stanley’s offer – which could assuage the concerns expressed by class A and B noteholders – materially changes this position remains to be seen.
Cairn Capital is advising Hypothekenbank Frankfurt, Brookland Partners is advising Northwood Investors.