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Gherkin Lenders Fight Over Rate Swap Before Restructuring

The Gherkin Tower Stands in London
The cucumber-shaped tower at 30 St. Mary Axe last week became the most high profile London property to go into receivership since Canary Wharf was taken over by creditors in 1992. Photographer: Simon Dawson/Bloomberg

Lenders to the Gherkin tower asked a London court to settle a dispute over 140 million pounds ($236 million) from interest-rate swaps as the skyscraper prepares for a debt restructuring or sale.

Landesbank Hessen-Thueringen Girozentrale and other lenders said 400 million pounds in loans used to buy the property should be repaid ahead of money owed to Bayerische Landesbank under the swaps, according to court documents at a hearing yesterday.

“The fall in interest-rates since February 2007 means that the hedging agreements are very significantly out of the money for the borrowers,” Landesbank Hessen-Thuringen’s lawyer, Guy Philipps, told the court.

The cucumber-shaped tower at 30 St. Mary Axe last week became the most high profile London property to go into receivership since Canary Wharf was taken over by creditors in 1992. Lenders to the Gherkin hired Deloitte LLP on April 24 after loan terms were breached. Buildings in receivership are typically sold to pay debts.

Bayerische Landesbank said in legal documents that about 140 million pounds that would be due under the swap should take priority. As well as being a counter-party, the Munich-based bank is a lender to the Gherkin.

Bayerische Landesbank’s lawyer David Capps didn’t immediately respond to an e-mail seeking comment. Officials at Deloitte didn’t immediately return a call seeking comment. Will Black, a spokesman for Deloitte, declined to comment.

2007 Purchase

Evans Randall Ltd. bought the Gherkin for 600 million pounds in 2007 with a fund managed by Germany’s IVG Immobilien AG. The building has tenants including Swiss Re AG and Standard Chartered Plc. The Gherkin was valued at 473 million pounds to 510 million pounds in 2012, IVG said last year.

Bayerische Landesbank led a group of banks that provided the financing for the Gherkin’s purchase, according to Evans Randall.

The other lenders included DekaBank Deutsche Girozentrale, Landesbank Baden-Wuerttemberg and ING Groep NV, Evans Randall said.

“Once the outstanding points are resolved, we can get on with working with all parties to ensure the future success of this iconic building,” ING said in a statement.

Landesbank Hessen-Thueringen said in its court documents that “financing is currently in difficulty, and various restructuring and enforcement options are being considered.”. The borrowers are unlikely to be able to meet their obligations in full, it said.

Adverse Interest Rate

Deloitte said in an April 24 statement that the defaults stemmed from the building’s complex, multi-currency capital structure. “Adverse interest rate and currency movements have caused the total senior liabilities secured by the property to increase materially,” the firm said.

Rate swaps allow borrowers to keep payments within a fixed range even if interest rates fluctuate more widely. When rates fall, customers might pay higher costs for the swap to keep payments within the agreed range.

The case is: Landesbank Hessen-Thuringen Girozentrale & Ors v. Bayerische Landesbank & Anr, High Court of Justice, Queen’s Bench Division, Commercial Court, 13-1611

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