Investors Recouping Money After Default Signals Europe CMBS Cure

Investors in bonds backed by a loan financing U.K. offices and car showrooms that defaulted in October will be repaid in full, bolstering optimism Europe’s dysfunctional commercial mortgage bond market can be fixed.

Holders of the 264.3 million pounds ($452.6 million) of securities will receive outstanding principal and accrued interest on July 23 after the properties were sold, according to a statement from Fordgate Commercial Securitisation No. 1 Plc, the issuer of the debt, yesterday.

The payment will encourage holders of CMBS as many loans that ran into trouble after the financial crisis remain unresolved. More than 16 billion euros ($22 billion) of debt was held in June by special servicers, which can restructure troubled deals by selling debt and foreclosing on properties.

“CMBS has attracted a lot of negative headlines but the Fordgate deal shows that when you look past the bad news you can see that investors can get their money back even after standstills and defaults,” said Mark Nichol, a structured finance analyst at Bank of America Corp. “Very few senior tranches of CMBS have actually incurred losses.”

Europe’s commercial mortgage bond market was shuttered after a 40 percent peak-to-trough decline in real estate prices during the crisis left thousands of properties worth less than outstanding debt. Loan managers have waited for prices to rebound to try and avoid losses, rather than working out the defaults immediately, setting up Europe’s CMBS market for a lengthy period of distress.

“Standstill agreements that were put in place over a short period of time were to ensure that the borrower and sponsor were focused on co-operating with the special servicer in resolving the issues on the defaulted loan,” said Paul Lloyd, London-based managing partner and head of loan servicing at Mount Street LLP, the special servicer on the Fordgate CMBS.

The Fordgate bonds can be repaid after Kennedy Wilson Europe Real Estate Plc (KWE) bought the majority of properties backing the deal last month. The largest property is Argyle House in Edinburgh, which houses the Secretary of State for the Environment, according to data compiled by Bloomberg.

To contact the reporter on this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan, John Parry

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