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Credit Suisse takes Class X action against Titan CMBS

Credit Suisse is taking legal action against its own Titan Europe 2006-2 deal in what is believed to be the first action of its type by a Class X noteholder. The €862m 11-tranche Titan Europe 2006-2 deal contained a €50,000 Class X component. The transaction is a securitization of seven loans, originated by Credit Suisse, made on 208 properties located across Germany.

Credit Suisse is taking legal action against its own Titan Europe 2006-2 deal in what is believed to be the first action of its type by a Class X noteholder.

The €862m 11-tranche Titan Europe 2006-2 deal contained a €50,000 Class X tranche. The transaction was originally a securitization of seven loans, originated by Credit Suisse, made on 208 properties located across Germany, mainly multifamily assets.

Credit Suisse claims the rate of interest due to it as the Class X noteholder was incorrectly calculated. It has named the issuer, Titan Europe, the note trustee, US Bank Trustees Limited (originally ABN Amro Trustees Limited), and the agent bank, US Bank (orginailly ABN Amro), as defendants.

A notice to the London Stock Exchange, filed by Titan Europe last week, said: “The alleged miscalculation concerns the construction of one of the components of the Class X Interest Rate, namely the definition of ‘net mortgage rate’.”

ABN Amro was originally responsible for calculating the interest rate and when the loans are in default, the Class X interest rate has been calculated without including the default interest payable.

However, Credit Suisse said “its view is that default interest should have been included in the calculation of the net mortgage rate, and that not including the default interest means that the Class X interest rate is lower than it should have been.”

Several of the loans defaulted, including, Margaux, which was originally €273m and secured on four properties, and Labrador, which was originally €44m and made on 45 assets in Germany.

A hearing in the High Court is scheduled for February 2016. The Titan Europe 2006-2 deal reaches final maturity in January.

The Margaux assets were sold in a process that was run last year by the deal’s special servicer Hatfield Philips. The buyer, IN-WEST Partners, paid €268m with the noteholders reportedly receiving €239.5m last January according to Costar. However, the Qatari borrowers are suing the special servicer, alleging a higher price could have been received, allegations that Hatfield Philips refutes.

Credit Suisse’s action now is the latest in a series of court cases testing the legality of certain aspects of legacy CMBS deals.

The High Court in London this week ruled proceeds from the sale of assets in the heavily defaulted £850m Gemini CMBS should be classified as principal and not interest, entitling only Class A noteholders to receive payments from asset sales. Had the court ruled sale proceeds as interest, then the junior noteholders, classes B to E, would also be eligible for payments.

Colliers International is currently appealing a High Court judgment last year that ruled they had negligently overvalued a property in Germany by €32m in the Titan Europe 2006-3 CMBS transaction.

It was the first case in which an issuer has been held to have legal standing for a negligence claim against a valuer, although it was the originator, Credit Suisse, that instructed the valuer and obtained the valuation report.

See October’s Real Estate Capital for more on recent legal action in the CRE finance market, in an article by Rosling King.

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