GERMANY - Lenders have agreed to extend a €422m German securitised real estate loan, with the announcement representing "more than a vote of confidence" in the commercial mortgage-backed securities (CMBS) market, according to Steve Harle, vice-president at servicer Hatfield Philips.
The Talisman-6 'Orange' loan, which was securitised in 2007 on 159-asset German retail portfolio - then worth approximately €549m - is one of the largest European CMBS to date.
Despite a loan-to-value breach in the run-up to maturity and no likely prospect of repayment, Harle said the borrower had come up with a cashflow-linked plan that included divestment of assets and active management of the portfolio to ensure it retained its value. In return, lenders - each with an investment capped at €50m - will extend the debt to July 2014, subject to the borrower meeting successive asset-disposal deadlines.
One of criticisms of the European legacy CMBS market has been the lack of incentive to maintain the value of assets. In an announcement to the Irish Stock Exchange, Talisman-6 confirmed that one of the terms of the deal would be the recruitment of new property manager.
Hatfield Philips said the refinancing would "quash fears of wholesale collapse in the refinancing of Europe CBMS market", because it showed borrowers were more willing to come clean over their ability to access bank finance and to offer "realistic" business plans.
Harle said it had been clear in talks that began 12 months ago that the borrower intended to pay off the loan.
"The problem was that the borrower wasn't in a position to refinance the loan - but investors no longer just rely on the borrower's word when [borrowers] say they can't refinance," he said.
"Borrowers used to expect that loans would automatically be extended. We've stepped in and shown that we work for noteholders, not banks.
"Investors want to know what's going on with their loan and borrowers know they'll have to work harder for it."
The refinancing also reflects noteholders' reluctance to go into special servicing.