A Goldman Sachs-led consortium is making the first ever attempt to extend the maturity of a CMBS beyond its final date. One source working on the proposed restructuring of the £1.1bn Fleet Street Finance 2 said the proposal has “huge” significance. If agreed, it will set a precedent for other CMBS. On 24 February bond holders were due to vote on the bonds’ maturity being pushed back three years to 2017 and the loan maturity being extended to 2014. The deal is secured on a portfolio mainly consisting of Karstadt department stores.
Both the CMBS and the whole loan are deeply underwater. A new Cushman & Wakefield valuation put the portfolio’s value at just €713.2m after the tenant, retailer Karstadt Quelle, went into administration last summer. Bonds’ maturity dates are considered an unchangeable point in financial markets. The consortium has not had time to consult rating agencies on the proposed modifications. One serious implication of the proposal, if it is voted through, is that there is no liquidity facility in place beyond 2014.
The proposal prompted Standard & Poor’s to downgrade all bonds in Fleet Street 2 to ‘D’. But CMBS specialist Fitch Ratings said it believed there were “mitigating factors to offset the maturity extension” and it will re-rate the CMBS after the vote without first downgrading it to the D category. A raft of other investors, including Goldman Sachs, bought three mezzanine debt tranches. The borrowers, mezzanine lenders and note holders hope Karstadt’s insolvency administrator can stabilise the business. Rent is still being paid on most of the portfolio.