Europe’s commercial mortgage-backed securities market has entered unchartered territory after Eurohypo’s Opera Finance (Uni-Invest), the troubled Dutch property securitization, this week became the first CMBS in the region to reach bond maturity without paying off. Market officials are now waiting to see how senior bondholders will approach a potential enforcement process following the event of default in the notes. Calls to Eurohypo, the special servicer in the deal, were not immediately returned, while officials at the trustee, Stichting Note Trustee Opera Finance (Uni-Invest), could not be reached. Officials at Uni-Invest Holdings, the borrower in the underlying loans, could also not be reached for comment.
Under deal documentation, the non-payment of the bonds on the Feb. 15 legal final maturity date allows the trustee to step in and, under agreed direction from a majority of the class A bondholders, accelerate the note and foreclose the issuer security. A London-based real estate securitization lawyer not connected to the deal said that with the CMBS bonds edging toward default for some months, senior bondholders are understood to have been in talks over what measures to take regarding enforcement.
“This has never happened before—it’s going to be difficult and possibly messy, but it’ll be an interesting one to watch,” the property securitization lawyer told SI Thursday. The senior bondholders in the deal could not immediately be identified.
A research note by Barclays Capital meanwhile indicated a note acceleration and enforcement against the issuer may not necessarily occur immediately, with senior investors and the issuer instead potentially opting for a debt extension and standstill agreement on the bonds, similar to those agreed at the loan level.
“The ultimate aim could be to allow the special servicer to continue enforcing against the borrower and pursue piecemeal property disposals,” said Christian Aufsatz, CMBS analyst at BarCap in London, in the note on Thursday. He added senior bondholders could even provide some leverage to possible bidders in order to swell bids and increase the loan recovery.
But the property securitization lawyer stressed that with the Dutch office property market still in poor shape, disposing the underlying assets—a mixture of office, industrial and other real estate in the Netherlands—for a satisfactory price could prove tricky. “If [bondholders] are going to go ahead with enforcement, it’s likely the trustee will negotiate some indemnification from them,” the lawyer explained. “The trustee will probably seek some kind of protection from the bondholders.”
A series of borrower defaults in the EUR1.01 billion ($1.43 billion) deal last year placed the CMBS into special servicing (SI, 2/24/2011). Eurohypo as special servicer later tried to auction off Uni-Invest Holdings’ assets as a going concern. But the auction was suspended in December following doubts over the prospective bidders’ ability to raise debt financing (SI, 1/12).
The way in which the deal, which launched in 2005, is wound down will be now be closely tracked by the wider market, potentially serving as a precedent, market officials said. Aufsatz noted that if the final outcome is positive for the class A bonds, it could further reduce senior noteholders’ willingness to extend CMBS bond maturity dates
The lawyer added, “Every deal is going to be different, but [Opera Uni-Invest] may provide some kind of basis for other deals hitting maturity.”