Windermere servicing squabble is a big turn off for CMBS cause


A curious case is playing out in the world of CMBS work-outs, after investor Lone Star tried to replace a special servicer, but the incumbent queried its termination, then failed in an attempt to resign instead (see more).

Hatfield Philips resigned on the last day of a notice to terminate its appointment on two Windermere XIV loans, but later the issuer said the resignation was not effective.

The confusion centres on documentation stating that if a special servicer is changed, all agencies that rated the original CMBS must confirm that they will not downgrade the deal. But as of last December, Fitch no longer provides such confirmations. This implies that the controlling class could not terminate Hatfield as special servicer on any appointments on the outstanding European CMBS among the around €70bn Fitch has rated (European only, as strangely, it still provides confirmations in the US).

Meanwhile, no one seems clear about what will happen next on Windermere XIV. At the Brussels ABS conference last week, CMBS investors called for clarity. There is a €25bn wall of maturities this year and next, at least partly due to servicers rolling on deals after ‘first’ loan maturity dates. Many of these deals face big losses.

Hatfield and Capita service 70% of the outstanding CMBS market, and investors and rivals for the duopoly’s business would, of course, like to spread that around.

Fitch hasn’t revealed its motivation for a decision that was unhelpful, to say the least. Hatfield says everyone should stick by the documentation, but agrees the situation is difficult for the market. Others have taken notice – the two new Gagfah CMBS deals include clauses indemnifying the trustee if this situation were to arise in future; Fitch rated both new issues.

This dysfunctional picture will not reassure borrowers considering CMBS as a financing option, just as primary issuance re-emerges. It would be helpful if Fitch would take the initiative with a clear legal statement allowing trustees to proceed if it cannot change its mind about providing confirmations.