Noteholders in the LCP Proudreed CMBS are meeting to discuss the £322m transaction and certain issues relating to recent valuation reports. The 2005 deal has not defaulted, but investors are being proactive ahead of its maturity in August 2014 and have asked Brookland Partners to coordinate a meeting. The transaction is an agency deal whereby the borrower taps the capital markets directly, and does not benefit from a loan servicer who would normally act as the focal point for creditors.
The CMBS contains two loans originated by HSBC, backed by a mix of UK secondary/provincial properties: industrial estates, retail and shopping centres and a few offices. One, to London & Cambridge Properties, accounts for 86% of the pool and reported an interest coverage ratio of 3.96x and a LTV ratio of 69.78% in February. The second loan, to Proudreed Real Estate, had an LTV ratio of 68.52% and an interest coverage ratio of 3.65x. The issue’s LTV covenant is 70%.
Last October Fitch estimated the leverage to be “well in excess of 80%” and last month Standard & Poor’s lowered its ratings on all the notes after applying its updated CMBS criteria. Noteholders have raised questions concerning certain valuation assumptions given the secondary nature of the underlying assets and performance of this sector over recent years. A breach of the LTV covenant does not trigger a default but would require the borrowers to post additional collateral in the form of assets or cash to cure the breach.