Opera Finance (Uni-Invest) BV noteholders are scheduled to vote on a plan to extend the bonds to 2016 and hire Blackstone Group LP (BX)’s Valad Property Group affiliate to sell the real estate backing the CMBS. If they reject that plan, senior creditors will vote on an offer from TPG Capital and Patron Capital Partners to buy their Class A notes.

Their decision may be a model for future CMBS defaults, and show the willingness of European investors to restructure and dispose of property or sell the securities to the highest bidder, said Philip Cropper, CBRE Group Inc. managing director for real estate finance. About 48 billion euros of CMBS will mature during the next three years, Morgan Stanley estimates. Most are backed by non-prime properties.

“This is a first and there will be others that head across to this position,” said Cropper. “This will give us some lessons on the process because this has never been done.”

Dutch real estate company Uni-Invest Holding NV borrowed the money and defaulted Feb. 15, when the loans matured. Other CMBS borrowers have avoided default on maturity after creditors agreed to restructure or change the terms of their loan.

The notes were issued after loans backed by properties including the Magna Plaza shopping center in central Amsterdam, as well as offices and industrial buildings, were packaged and sold as a 1 billion-euro CMBS in 2005, according to data compiled by Bloomberg. Since then, some of the principal was paid through the sale of more than 100 buildings. The special servicer for the notes, Eurohypo AG, called today’s meeting.

If neither plan is adopted, the CMBS “would remain in a zombie-like state in which it is unclear who would direct the day-to-day operation of the company,” said Mark Nichol, a structured finance analyst at Bank of America Merrill Lynch.

‘Consensual Restructuring’

Investors in the four classes of CMBS notes will first vote on a “consensual restructuring” of the loans, extending them by four years, adjusting interest payments and hiring Valad to manage and sell the collateral. Valad has said the most junior CMBS noteholders may recover some money after four years. It will charge an initial annual management fee of 6.5 million euros, which would decrease as assets are sold.

Since the value of the real estate backing the CMBS has fallen, investors owning the three junior classes of notes will probably approve the Valad plan, Merrill Lynch’s Nichol said. That leaves the Class A noteholders with the ultimate decision, he said.

If the Class A noteholders reject the Valad proposal, they will then vote on the TPG-Patron offer of an initial payment of 40 percent, about 144 million euros, plus interest and some expenses. The balance would be in new four-year notes to be repaid with asset-sale proceeds.

Less Risky

The three junior CMBS tranches wouldn’t get paid under the Patron and TPG proposal. The firms have said their plan makes disposals less risky by reducing the amount of debt backed by the properties and because they would put money into the buildings to facilitate their sale. TPG and Patron have said they wouldn’t make a profit until the Class A notes are fully repaid.

The TPG-Patron offer would raise the equivalent value of the Class A notes to around 90 percent of nominal value, compared with 79 percent last month, Krishna Prasad, an analyst in the asset-backed securities department of Royal Bank of Scotland Plc, said in a March 27 note to investors.

“Over the longer term, we would not be surprised if they recovered close to par in principal,” Prasad said.

‘Fire Sale’

A June 2011 appraisal by CBRE Group estimated the “fire sale” value of the remaining 203 offices and industrial properties was about 400 million euros, according to a filing to noteholders. Efforts to sell the properties collapsed in November because bidders weren’t able to finance the transaction amid a slowdown in credit markets, according to a filing published by Eurohypo.

“The assets are widely regarded as being of mediocre quality and are also probably losing value in the absence of active management and capital expenditure,” according to RBS’s Prasad.

Constrained lending in Europe and difficulties in Dutch real estate mean a 360 million-euro value for the properties is probably also too high, Prasad said.

Average national office vacancies of 15 percent and falling rents mean landlords should take 7 billion euros of writedowns, Ronald Gerritse, chairman of the Dutch financial markets regulator AFM, said in a Dec. 23 interview with NRC Handelsblad. Jan Sijbrand, a director of the Dutch central bank in charge of regulation, said values were unrealistic in a Feb. 5 interview with Het Financieele Dagblad newspaper.

To attract or retain tenants on a standard five-year lease, landlords are offering one to two years rent free, depressing real rents by 20 percent to 40 percent depending on the location of the property, Machiel Wolters, an analyst at CBRE in Amsterdam, said. The outlook in the market and constrained lending depressed Netherlands commercial real estate sales last year to the lowest since at least 1998, he said.

“The Netherlands is a graveyard,” Pierre Vaquier, chief executive officer of Axa Real Estate Investment Managers, said in an interview last month.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

http://www.bloomberg.com/news/2012-04-16/opera-s-premiere-cmbs-default-tests-creditors-mortgages.html

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