US REIT Anthracite Capital, a specialist in real estate debt, has filed for liquidation in the US after defaulting on its own debt. Managed by BlackRock, Anthracite invests in CMBS, commercial real estate loans and REIT securities, at the riskier, high-yield end of the market, buying mostly B-notes and subordinate CMBS.
Anthracite also funds itself by securitising property loans and CMBS. It issued seven collateralised debt obligations between 2002 and 2006. One of these, Anthracite Euro CRE CDO 2006-1, a €256m issue of floating-rate notes, was Europe’s first CDO to be collateralised with commercial real estate, mainly CMBS and subordinated loans.
Two-thirds of the underlying properties, mostly offices, are in Germany and the rest in the UK. Also managed by BlackRock, it was issued in 2006 but is not due to mature until 2042.
In Q1 2009, Fitch downgraded many of Euro CDO’s assets, triggering a breach of its covenants. In November, the company said cash flow remaining after paying interest on class A and class B senior notes was being diverted to pay the class A notes’ principal.
The credit crunch hit the value of Anthracite’s assets and its funding sources dried up as banks stopped lending and demand for CDOs evaporated. In December, the company defaulted on $1.6m of interest payments on $79.25m of senior notes, due on October 30.
Anthracite’s bankruptcy filing puts its assets at $100m-$500m and its debt at $500m-$1bn. Shareholders are likely to be wiped out and recovery for unsecured creditors would be “minimal”, the company said. Around 14% of the shares are held by a limited partnership Credit Suisse runs for its clients.