The court case seeking clarification about apportioning recoveries from the heavily defaulted £850m Gemini CMBS appears finely balanced, according to court observers.
After a day-and-a-half of argument in front of Mr Justice Henderson at the London High Court last week, no party left proceedings confident of victory.
The case revolves around whether proceeds of sales from Gemini’s assets should be counted as principal and go only to Class A noteholders or as interest payments available to all noteholders.
One Class A noteholder is party to the legal action, as is the issuer of the Glastonbury CRE CDO represented by Palatium Investment Management (which also represents the Classes B-E).
Paul Rivlin, partner and chairman of the investment committee at Palatium, said the fact that the deal’s special servicer CBRE Loan Servicing and lawyer Paul Hastings could not come to a decision on the issue showed how difficult it is.
“If you stand back and say ‘what is the significance of the treatment of the liquidity’ then you find significant parts of proceeds going to interest. On the commercial merits that’s where you end up,” said Rivlin. “Whether the judge sees it that way we’ll have to wait and see.”
The Class A noteholder, represented by Richard Sheldon QC and Sue Prevezer, argued that the sale of buildings generated capital not interest.
One observer in court said there may have been a perception that the judge was leaning towards the Class A argument and that there could be more issues involved going with the lower noteholders.
“But you just never know. It’s finely balanced. There are good arguments on both sides and quite frankly the parties, issuer, trustee, and cash manager all want to know what it will be,” he said.
A decision is expected in the next few weeks.