Fitch highlights loan refinancing crisis, with DECO and Perseus deals among those in difficulty
Some €2.5bn of European CMBS debt matures this month, marking the largest monthly amount of securitised debt ever to mature.
The quantum is inflated by 13 loans totalling €1.5bn that have already been extended at least once. Fitch Ratings expects most of the 32 total loans will fail to be repaid due to a lack of refinancing options.
Pools of loans in DECO Series 2005 – Pan Europe 1, and Perseus (European Loan Conduit No. 22) face a particular challenge, as they have legal final maturities in two years’ time, when the sponsors need to repay bond investors.
Fitch’s monthly European CMBS Loan Maturity Bulletin said the special servicers to these deals could come under time pressure to sell property in “a soft market”.
Pan Europe 1 includes a €37m loan on German multi-family housing portfolios in Kiel and Potsdam, which Fitch describes as “average quality”; a seven-property portfolio let mainly to Deutsche Post in Berlin; and a business park in Switzerland.
Perseus is secured by two loans totalling £102.2m, on over 150 UK bank branches, owned by Mapeley and let to Santander, which Fitch considers likely to be repaid after maturity; and the secondary Yate shopping centre in South Gloucester, which may enter a work-out.
Others under pressure are 10 €100m-plus loans that could struggle to attract refinancing due to their size. The largest is secured against Treveria’s German retail warehouse portfo-lio – the Orange loan securitised in Talisman-6 Finance.
The €380m outstanding is over-leveraged and unlikely to be refinanced without a large equity injection. Treveria had a 12-month option to extend from last July and extension options up to 2014, if it sells assets to cut the loan-to-value level.
Another problem loan is one to Irish property company Brooklands Group, secured on CMS Cameron McKenna’s City headquarters, Mitre House.
The £82.1m senior loan was securitised in Titan 2005-1 and there is a £25m junior loan. The value of the property had fallen to £70.75m as of March, partly because the law firm’s lease on the building runs out in 2015.
But the £120m loan in Taurus (Pan-Europe) 2007-1, secured on British Land’s and Land Securities’ Bon Accord and St Nicholas shopping centres in Aberdeen, is likely to be repaid.
With monthly loan maturities inflated by previously extended loans, Fitch said this “threatens to make the gradient of the refinancing wall steeper in the run up to the bond maturities”.
The rating agency also said that while average interest cover for the July maturities is very good, at 2.9x, the number of extended loans at lower interest rates skewed the figures.
“With margins on new loans offsetting much of this saving, current interest cover does not guarantee successful refinancing. The level of equity is a better indicator of whether the loan will be refinanced.”
Fitch said another €2.6bn of CMBS debt is due to mature after the next quarter date, in October, with 77% of it secured on UK assets and the rest on German assets.