Credit Suisse Seeks More Interest on Pre-Crisis CMBS Deals

  • Payments may have to be clawed back from other noteholders
  • Credit Suisse asks London court to rule on Class X notes

Credit Suisse Group AG’s asset management unit is seeking to recoup “significant and material sums” of unpaid interest on its holdings of pre-crisis commercial mortgage bonds in a move that may see money taken back from other noteholders.

Credit Suisse Asset Management asked a London court to determine what level of interest should be paid on its Class X holdings in four notes sold by its investment bank in 2006 and 2007, according to a statement on Friday. Legacy European CMBS deals often included Class X notes, which were typically held by arrangers and structured to pay out even when the underlying loans had defaulted.

Class X notes became a focus of ire when Europe’s 48.8 billion-euro ($55.5 billion) CMBS market stalled following a collapse in real estate prices during the financial crisis, spurring losses and sparking disputes between investors, loan managers and arrangers. Credit Suisse’s request for payment revives concerns that the industry sought to address when it overhauled standard structures in 2012, as part of an effort to revive issuance, dubbed CMBS 2.0.

"What investors disliked most about Class X notes is that they were paid irrespective of the performance of the underlying loans," said Erik Parker, an asset-backed securities strategist at Nomura Holdings Inc. in London. "When a loan is in default and losses are more likely for bondholders, the Class X sits on top of the pile and keeps getting paid."

Credit Suisse Asset Management is seeking additional payments for Titan Europe 2006-1 Plc, Titan Europe 2006-2 Plc, Titan Europe 2007-2 Plc and Cornerstone Titan 2007-1 Plc, according to the statement.

Maya Kunz, a spokeswoman for Credit Suisse in London, declined to comment on the asset manager’s plans for the Class X notes.

The cash may have to be clawed back from other noteholders if there’s not enough money left in the securitizations to pay the Class X notes, said Nomura’s Parker. The trustee could restate the interest payment for prior periods and ask settlement firms such as Euroclear to make adjustments by debiting investors’ accounts, he said.

“The same issues shouldn’t recur in new CMBS deals, but that does not do much to ease the pain for investors in legacy deals,” Parker said.

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