More deals likely to follow first default by Opera bond

The bonds in a European CMBS have defaulted for the first time, with more examples likely to follow this year.

The €521.8m Opera Finance Uni-Invest deal earned the dubious distinction of being the first bonds to default when the deal reached legal final maturity on 15 February without repaying.

The class A noteholders declared a note event of default on 21 February. According to Fitch, another seven loans will reach legal final maturity this year.

Loan defaults in CMBS issues are common, with 55 defaulting due to loans failing to repay at maturity last month alone, according to Fitch.

But loans in CMBS deals mature several years ahead of the final notes, to allow time  for work-outs to be completed within these ‘tail periods’ before final maturity.

With an increasing number of deals in long work-out periods, investors and advisers are concerned that as the tail period shortens, the assets become more difficult to sell at anything other than distressed prices.

Eurohypo, Uni-Invest’s special servicer, had attempted to sell the company with its assets in the second half of 2011 (see below).

But according to Fitch: “The erosion of time restricted the servicer’s operational flexibility and weakened its bargaining position, both with the borrower and potential finance providers.”

When notes default, control  passes to the class A noteholders and the bonds get down-graded; Fitch downgraded all Uni-Invest bonds to D last week.

Hugo Headicar, joint managing partner at Rhino Investment Management, which buys CMBS for clients, said: “The approach of legal final maturities will be a concern for servicers, as it limits loan extension options.

“For investors, this is new territory and is likely to create significant repricing of deals if a precedent for legal final maturity extension is established.”

European CMBS legal final maturity dates will peak in 2016 and 2017, reflecting a high level of loan maturities this year and next.

 Failed Uni-Invest disposal sparked bond crisis

Eurohypo, special servicer to Uni-Invest, advised by Cairn Capital, failed to sell the property company last October, following a CBRE valuation of 204 Dutch mainly secondary offices in June, which ranged from €719.5m (‘optimal’) to €400m (‘firesale’).

The bids, thought to have come from RREEF and Patron Capital with TPG, were not deemed acceptable.

The bank provided a €142m junior loan, which is now certain to be wiped out.

An ad hoc class A noteholder steering committee has been in talks with the special servicer since 8 February and will now consider the options for noteholders, which include foreclosing on the assets.

Uni-Invest Group was taken private in 2003 by Lehman Brothers Private Equity Real Estate and refinanced for a second time in 2005 through the Opera CMBS.