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Capital Markets

Real estate restructurings: Senior noteholders take first, but not last, hit

Market faces workout logjam; System failing to cope

When Euromoney recently asked a CMBS expert what percentage of European deals outstanding would need to be restructured in some form, his rather chilling answer was "all of them". This alarming news came alongside a Moody’s announcement in late July that the first substantive losses in European CMBS had been realized following the liquidation of loans in three large multi-borrower transactions.

Losses on the senior notes in one of the deals, an RBS-originated synthetic single-borrower deal, are expected to be between 30% and 40%. This adds further pressure to the painful process of working out these deals and what is becoming readily apparent is that the system will not be able to cope.

So far most of the restructurings that have taken place in Europe have involved loan extensions. The Mall Fund agreed to a restructuring of its £1.1 billion ($1.7 billion) UK shopping centre CMBS on July 20.

Fleet Street

Cairn Capital, which has been involved in many of the European restructurings that have so far taken place, was appointed financial adviser to the borrower on the Fleet Street Finance 3 transaction in July – the deal faces loan maturities in early 2011.

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