Cheyne Capital Management is seeking to appoint itself as the operating adviser over the £535m whole loan which is secured by CityPoint tower, as the bondholder seeks to exercise its tactical play ahead of the loan’s maturity in less than five months.
The £535m whole loan, which is secured by the 703,000 sq ft skyscraper at One Ropemaker Street , is comprised of the five-tranche interest-only £429m Ulysses ELoC 27 CMBS loan as well as a £106m junior loan.
Cheyne owns a major stake in the £11m class E tranche of Ulysses ELoC 27, which is the transaction’s “controlling class”, entitling the investor to seek to appoint an operating adviser which, in turn, would grant the bondholder the power to change special servicer if it wished to do so.
Currently, the special servicer is Morgan Stanley Mortgage Servicing (MSMS), but this is imminently to change to Mount Street, the European commercial real estate loan servicer, which will shortly close the acquisition of MSMS’ entire CMBS loan servicing platform, named ELoC.
Cheyne, which declined to comment, has called an EGM to seek to appoint itself as operating adviser on 24 March 2014 at 11:00am at Norton Rose’s 3 More London offices, at which 75% of noteholders in the Class Es of Ulysses ELoC 27 must consent to Cheyne’s appointment for the resolution to be passed.
If Cheyne is successful, the bondholder will carry an influence over the restructuring of the maturing £535m whole loan, which it would be motivated to do if the strategy employed by the incumbent servicer was not in the economic interests of the class Es.
Knight Frank re-valued CityPoint tower on 7 January this year at £444.3m, against which there are estimated gross liabilities of £612m, comprised of:
- an estimated £77m mark-to-market on the interest rate swap which ranks senior to the CMBS senior loan;
- the £429m Ulysses ELoC 27 CMBS loan; and
- the £106m junior loan.
Based on the above, value currently breaks deep in the class Cs with £367.3m, less costs, in the event of a loan acceleration and a sequential pay-down to bondholders.
Cheyne – along with fellow class E bondholders, the junior lender, as well as the Ds and to a lesser extent the Cs – are likely to be motivated to push out the loan maturity – currently at 21 July 2014 – by at least another three years.
This trajectory – currently the most probable – would see the interest rate swap burn-off and full value could feasibly be restored to the junior Ulysses noteholders, as well as a likely recovery for the junior lender.
Mount Kellet was the junior lender last summer but was known to be in the market looking to sell its position.
Last August, Morgan Stanley acquired a £140m slice of the £249m class As from National Australia Bank at 92 pence in the pound. The class As are now thought to be trading at around 96 to 97 pence in the pound. LBBW is thought to be among the other major senior Ulysses bondholders.
Beacon Capital Partners originally acquired CityPoint tower in April 2007 for £650m from a consortium of investors – comprising Tishman Speyer, Caisse De Depot Et Placement Du Quebec, Schroders and UBS Global Asset Management – in what was then the largest City property deal.
At the January interest payment date (IPD), the annual income was £27.7m. Simmons & Simmons is the largest tenant, occupying 283,347 sq ft, or 40.2% of annual rent, paying 11.1m per annum.
The two most significant maturing leases are Vinson & Elkins and Cravath Swaine & Moore, with a lease expiry and break clause respectively in less than two and a half years each.
More broadly, there is a raft of lease re-gearing potential within the skyscraper which could materially add value over the coming years helping Ulysses noteholders crystalise a major turnaround recovery.
All parties declined to comment.