Fire sales may be Opera’s next act after CMBS breaches standstill agreement

One of the largest European CMBS loans to mature last year has breached its standstill agreement and now faces likely enforcement.

It is doubtful whether the €613m Opera Finance (Uni-Invest) loan, secured on 207 mainly Dutch properties, will be paid down to a level that can be refinanced by the notes’ maturity date of 15 February 2012.

This could result in a last- minute fire sale to realise value and repay note holders, warned Fitch Ratings, which downgraded all of the notes.

The borrower failed to meet its senior loan amortisation target of €580m by 15 February 2011 as part of the standstill agreement and has until 2 March to cure the breach or a default would be triggered, giving Eurohypo (the senior lender, as well as mezzanine provider and special servicer) the right to enforce.

Eurohypo has hired Cairn Capital to advise on the deal. Note holders have been invited to join a steering committee that will be involved in talks about a restructuring proposal, which the borrower is due to submit by 18 March. First, it will put forward a new business plan on 11 March. Uni-Invest brought in Houlihan Lokey as adviser in January.

Eurohypo will scrap the mezzanine agency fee that  was introduced as part of the standstill agreement. This absorbed some of the excess rental income from the portfolio, given that about 50% of the loan’s balance is floating and unhedged – therefore the income coverage ratio benefits from low interest rates.

If there is a default, “all cash diverts to senior” note holders, said Eurohypo head of securitisation Caroline Philips, who is working on the senior side. Only 23 of the assets have been sold since the standstill was signed, leaving 207 still remaining in the portfolio.

The portfolio’s vacancy rate has also risen to 29.5% from 23% since the February 2010 interest payment date. But the loan-to-value ratio has fallen to 70.8% from 75.5% a year ago.