So it’s been just over a year since Fitch issued their press release confirming that as a matter of policy it would not provide rating agency confirmations (RACs) during the replacement of special servicers on EMEA CMBS transactions and indeed, just over a year since our last blog on the matter, entitled “What the Fitch??!”.
At the end of that blog we observed that it was going to be a fun year for CMBS – and wasn’t it just.
We have seen some interesting CMBS restructurings including the £238m LORDS 2 CMBS and the €480m Rivoli Pan Europe CMBS, which included the restructuring of the €105m loan secured on IBM’s headquarters in Madrid.
We also saw the resurgence of German multifamily transactions including the €1.07bn TAURUS 2013 (GMF1) PLC and the €2 billion German Residential Funding 2013-1 PLC transaction but also in new deals in UK with the £380m Deco 2013 Chiswick Park and the £263m Debussy “Toys R Us” transactions; that is, if you can see past the fact that much of the value of the new issuance involved refinanced debt. Hopefully the bullish researchers at the banks are right in their predictions for 2014. At this stage, it’s perhaps too early to tell.
What’s therefore perhaps equally, if not, more interesting is how the issue of servicer and special servicer replacements has evolved over the last year. If you remember we had the three-part blockbuster ‘Windermere XIV saga’; part 1, part 2 and part 3.
It also seems that Fitch’s reluctance to provide RACs continues to cause havoc for junior noteholders seeking to exercise their rights to replace special servicers. However, it might all be coming to a head with the Controlling Party’s proposed replacement of Capita with Mount Street as Special Servicer of the only loan in the £610m Titan 2007-1 (NHP) care home CMBS following the announcement that due to lack of support from senior noteholders for the replacement on the one hand – and because of the threat of legal action from the Controlling Party on the other – the Trustee has applied to the court for directions “as to matters of contractual interpretation relating to the applicability and satisfaction of the Appointment Conditions”.
We very much hope the issue of whether or not as a result of Fitch’s unwillingness to provide RACs, the rights of controlling parties in CMBS transactions to replace special servicers have been effectively frustrated (until Fitch decides to reconsider its position!) or whether the requirement for a Fitch RAC can now ever be an applicable pre-condition to replacement – can be finally determined through this court action. I think market participants and particularly incumbent special servicers, controlling parties and trustees will be anxious to see the outcome.
Will the court deal a final blow to the special servicer replacement process and will that lead to re-evaluation of the value attributable to junior notes with special servicer replacement rights or will the court pave the way for a less contentious and more efficient replacement process but which might risk upsetting existing special servicers? Either way, some clarity for the Trustees and Issuers would be nice. Watch this space.