Capital & Regional’s $193 Million German Portfolio Loan Defaults

A Capital & Regional Plc joint venture defaulted on a 158 million-euro ($193 million) loan after it failed to meet a loan-to-value test that would have allowed the company to extend the payment deadline.

The loan to the German portfolio 4 venture forms part of the Talisman-6 Finance Plc commercial mortgage-backed security, Capital & Regional said in a statement today. The London-based retail-property investor said 18 million euros of the loan is junior debt owned by the company and its venture partner.

Writing off the assets in the “worst case” scenario would lead to a 3.5 pence per share reduction in Capital & Regional’s net asset value, JPMorgan Chase & Co. said in a note to investors today.

All of the loans in the Talisman CMBS “are over-leveraged and are unlikely to refinance without a large equity injection,” Fitch Ratings said in a June 27 note downgrading the bonds. “The bulk of the pay down will have to come through asset sales which, given limited investor demand, will be problematic.”

Capital and Regional plans to put the German loan into special servicing, according to the statement, and the default will not have a material effect on the company’s first-half results. The 22 properties backing the loan have a vacancy rate of 7 percent, according to a note sent to investors by servicer Hatfield Philips International Ltd. on May 8. The buildings are leased mainly to retailers, according to the origination documents.

Capital & Regional declined 1 penny, or 3.8 percent, to 26.5 pence in London trading. The company has a market value of 89 million pounds ($140 million).

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