Kennedy Wilson and Värde Partners bid to secure bondholder approval to acquire the 16-strong Castle Market portfolio failed this morning, triggering the prospect of either the appointment of Ernst & Young as receivers, the beginning of negotiations with rival bidder Northwood Investors or, possibly, the start of a fresh CMBS restructuring battle.
This morning’s EGM was to seek bondholder approval over the changed distribution of sales proceeds due to noteholders in the Opera Finance (CMH) CMBS, following special servicer Hypothekenbank Frankfurt’s selection of Kennedy and Värde as preferred bidder last month.
However, Hypothekenbank Frankfurt proposal to sell the portfolio to Kennedy and Värde in a quicker process the CMBS document allows – in exchange for improved capital recovery for the class Cs and Ds – was rejected by the same two classes of junior bondholders.
As a result, the sale to Kennedy Wilson and Värde Partners – as things stand this lunchtime – is effectively blocked.
Hypothekenbank Frankfurt, which is advised by Cairn Capital, stated last month that in the event of the EGM failing to win the requisite approval across all four classes of bonds, it would proceed with the appointment of Ernst & Young’s David Hughes and Luke Charleton as joint receivers over the 16-strong Castle Market Dublin office portfolio.
Subsequent to which, Northwood offered a rival 11th-hour CMBS restructuring bid, which Hypothekenbank Frankfurt confirmed it would not engage with, after a blocking representation of both class A and B noteholders declared they would not support.
Kennedy and Värde also threatened to walk away if the special servicer engaged with the rival Northwood counterbid.
The special servicer – the Kingmaker in the battle for Castle Market – must now balance a precarious tightrope in its fiduciary duties to all bondholders.
While Hypothekenbank Frankfurt has already intimated its next step in this scenario, CoStar News understands that the special servicer is expected to consult with all noteholders to attempt to assess their thoughts on the Northwood bid, in light of this morning’s EGM vote.
An acceleration of the loan, and subsequent appointment of Ernst & Young’s David Hughes and Luke Charleton as joint receivers over the Castle Market portfolio, would result in a delayed return of capital to all noteholders, triggering a sequential pay down which would leave all class Cs and Ds out-of-the-money.
Potentially, new restructuring bids could now be tabled for control of Opera Finance (CMH) CMBS, and with Hypothekenbank Frankfurt’s disclosure of the previously-unpublished October 2012 asset-by-asset valuations, all parties previously restricted from trading in the secondary markets are now unrestricted.
The Opera Continues
CMBS analysts were quick to weigh in after the this week’s extraordinary events, some of which may now seem dated (as might the above news story itself, given the pace of events).
Paul Heaton and Conor O’Toole, CMBS analysts at Deutsche Bank, issued a provactively-titled note on Monday: Opera CMH – Turning into less of an Endgame, more of an Opera.
Subsequent to the failed EGM vote, Kennedy Wilson – announced through the special servicer – purchased a circa 25% stake in the class Bs.
This was an entirely voluntary disclosure by Kennedy Wilson.
This class B stake is sufficient to block any future CMBS restructuring EGM vote, and effectively neutralises Northwood Investors’ prior junior loan advantage.
Northwood bought the €85m junior loan below the Opera Finance (CMH) CMBS – which has the authority to veto any restructuring proposal.
Now Kennedy Wilson has acquired a 25% stake in the class Bs, so it can do the same.
Stalemate or compromise? This story has at least another chapter yet.