Alburn offers new proposals to REC 6 CMBS note holders

Borrower resumes restructuring talks after improved note buy-back fails

Irish property company Alburn Real Estate has put forward three alternative work-out proposals for the REC 6 CMBS, after failing in its bid to buy back notes in the securitisation. The £188m REC 6 is backed by a £200m whole loan with UK secondary properties as collateral.

In December, Alburn, acting via a vehicle called Gatak and backed by funds from investor Highcross, improved its offer for the bonds, hoping to win 75% of note holders’ approval.

But RBS, which owns 30% of the class A notes, is understood to have rejected the revised offer. This may have been because RBS was trying to hold out for a higher tender price, or because it believed that the ultimate recovery would be higher.

A group of class A note holders has retained law firm Paul Hastings to represent them in asking for greater levels of reporting and oversight by the current servicer, Rothschild. The borrower is now in  talks with note holders over  a number of restructuring options, the details of which were put forward at a meeting held on 18 February.

Alburn, which had hoped to collapse the CMBS structure and inject new equity via its tender offer, suggested three scenarios: the first proposed that agreement should be reached with 75% of note holders across each class to dismantle the current structure, an option not seen as attractive to senior note holders.

A £90m senior loan at a 65% LTV ratio would be sought, to be distributed among note holders. The portfolio would be worked out over five years, with remaining distributions made by 2016. The second option would involve an orderly sale of assets up to 2014, with the £17.8m cost of breaking the deal’s swap agreement being paid as and when the sales are completed.

Under the third option, which Alburn recommended,  the portfolio would be worked out over the period to 2016, at which point it would be sold. The deal’s hedging arrangement to 2013 would be extended by three years, reducing the annual swap payment. Another meeting to flesh out the strategy is scheduled for early March.