Fortress poised for leading role in Opera

Controlling class noteholders in the distressed Opera Finance (Uni-Invest) B.V. CMBS may appoint Fortress Investment Group as the new operating adviser at a meeting scheduled for 27 July. The move would complicate an already difficult attempt by Eurohypo, special servicer to the Dutch office CMBS, to recover value for noteholders, who face heavy losses.

Eurohypo may enforce on the loan backing the securitisation and sell Uni-Invest as a going concern, after the company defaulted on a senior loan balance target in February and subsequent refinancing talks with bondholders collapsed. But if the controlling class D noteholders appoint Fortress, the new operating adviser could hold up the enforcement process if it objects to Eurohypo’s strategy, or if it opts to replace the special servicer altogether.

Moody’s and Fitch have both downgraded the €656m of notes. The total debt outstanding is €752m. A desktop valuation by CB Richard Ellis in April, but just released by Eurohypo, put the firesale value of the 204 secondary properties left in the portfolio at €400m, and the “optimal” value at €719.5m.

Fitch questioned whether a new special servicer would want  to step in, or whether it would garner the required 75% majority vote for such an action, given the limited time until the bonds’ final legal maturity in February 2012 and the complexity of the documentation.

Moody’s said that with only seven months until maturity, there is an increased likelihood of lower recovery proceeds. All classes of notes are expected to suffer a full to substantial principal loss at the final determination date. Uni-Invest Group was taken private by Lehman Brothers Private Equity Real Estate in 2003 and its portfolio refinanced with HVB.

It was refinanced a second time through the Opera securitisation in 2005. Eurohypo has been working with REPE Capital Partners, which bought the Lehman PERE business in 2009. According to Fitch, operating costs absorb a third of the portfolio’s gross rental income, which, with a vacancy rate of more than 30%, is reducing net operating income. Cairn Capital is advising Eurohypo.

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