If you thought the wrangling over special servicer replacements was over following Richard Snowden QC’s judgment in US Bank v Titan Europe 2007-1 (NHP) plc in April last year, think again.
Ever since Fitch issued their press release confirming that as a matter of policy it would not provide rating agency confirmations (RACs) in relation
Previously in Clash of the Titan 2007-1: Zeus has spoken, we took a brief look at the judgment delivered by Richard Snowden QC. Another interesting aspect of the case which is beginning to generate commentary is that one of the other pre-conditions to the replacement of the Special Servicer is that the successor Special Servicer “has experience in servicing mortgages of commercial property on similar terms to that required under this Agreement and is approved by the Issuer and the Note Trustee (such approval in each case not to be unreasonably withheld)”.
On this point, the court found that the above clause contains two separate and distinct requirements, each of which must be satisfied before the termination of appointment of the Special Servicer can take effect – (i) the experience of the successor Special Servicer and (ii) the approval by the Issuer/Note Trustee.
Snowden QC confirmed that “given the importance of the role of Special Servicer, there is every reason why that parties should have intended that there should be a proper check on the suitability of the Special Servicer for the task; past experience is one, but only one, of the obvious factors that might be relevant in that regard”. He has, it seems, implied that the Note Trustee and the Issuer should have significant involvement in the effectiveness of that check.
Continue Reading Clash of the Titan 2007-1 (Part III): Controversy Thunders On
Well, maybe not Zeus but Richard Snowden QC no less. On Valentine’s Day this year, we published our blog entitled “Clash of the Titan 2007-1”. Now that the red roses have wilted, the champagne drunk and the chocolates eaten, let us take a look at what the first instance decision in Titan Europe 2007-1 (NHP) has to say about replacing special servicers in European securitisation deals.
In providing directions to the trustee, Richard Snowden QC considered two important issues: Who is the Controlling Party entitled to serve notice under the Servicing Agreement to require the termination of the appointment of the Special Servicer? What happens if the Servicing Agreement dictates that RACs are required as a pre-condition to the replacement of the Special Servicer but the condition could not be satisfied due to a rating agency declining to provide RACs as a matter of policy?
The “Controlling Party” is typically the party exposed to the first loss position on the structure i.e. either the B-piece lender or if value breaks in the securitised portion, the most junior class of noteholders, i.e. the “Controlling Class”.
Continue Reading Clash of the Titan 2007-1 (Part II): Zeus has spoken
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.
Continue Reading Clash of the Titan 2007-1
As some of you may have seen, Fitch helpfully issued a press release last week clarifying its position on providing rating agency confirmations (RACs) during the replacement of special servicers on EMEA CMBS transactions. Rather unhelpfully, however, the release stated they would not be providing any such RACs in the future. This policy, of course, applies to the very transactions that Fitch rated (in the majority of cases) at inception which contained (presumably, either at Fitch’s request or at the very least with their knowledge) the requirement that such RACs be obtained from the relevant rating agencies before any transfer of the special servicer function could occur.
The right to replace the special servicer of a particular loan in a CMBS transaction typically lies with party that is exposed to the first loss position in relation to that loan i.e. either the B-piece lender or the lowest ranked class of noteholders (usually labelled the ‘controlling party’ or ‘controlling class’). Such controlling party or controlling class therefore has a strong economic incentive to ensure that the maximum recovery from the loan is achieved by the special servicer.
Continue Reading What the Fitch??!