Opera Uni-Invest CMBS: the facts, the figures and the options

'A Texas shootout' - that is the scenario facing noteholders of the defaulted Opera Uni-Invest CMBS which are due to meet on Tuesday to decide between two competing workout options for the underlying portfolio of Dutch office and logistics assets. In this analysis, PropertyEU outlines the facts and the figures of the portfolio and the options facing noteholders who must choose between a consensual restructuring being proposed by Valad Europe and a credit bid put on the table by TPG/Patron Capital.

The facts: Uni-Invest
Uni-Invest is a Dutch real estate investment fund with 142 office assets - described by one commentator as the ‘crappiest assets in the crappiest locations’ - and some 54 better quality warehouse properties located in the western agglomeration and other parts of the Netherlands. There are also seven predominately retail assets.

The portfolio’s 763 tenants generate some EUR 62 mln of rent annually. But vacancy rates are significant: 45% for the offices and 24% for the rest. In addition, 39% of the portfolio’s top-10 leases expire in 2012-13.

Uni-Invest was delisted from Amsterdam stock exchange (now Euronext Amsterdam) in 2002 and taken private by a consortium led by Lehman Brothers. Eurohypo provided a loan for the assets back in 2005 and put it into a CMBS facility called Opera Finance, which had an initial volume of about EUR 1 bn.

Uni-Invest ran into trouble after being forced to cancel an initial public offering on Euronext in 2007, due to 'adverse market conditions'. The IPO was designed to raise EUR 373 mln, which would have been used to repay Eurohypo part of the loan.

The German lender entered talks with the bondholders after Uni-Invest defaulted on a senior loan balance target in February 2011. Uni-Invest's EUR 752 mln debt load was subsequently extended to mid-February this year.

Eurohypo and Cairn devised the dual-track strategy after attempts to sell the portfolio stalled due to the volatility in the market and disagreement among the noteholders.

Option 1: Valad’s ‘consensual restructuring’
Valad Europe is an asset manager with experience of fixing up ailing portfolios for sale such as Kefren in Sweden. It has managed over EUR 750 mln in accelerated disposals for three workout mandates over the last three years.

Under the proposal, the Opera CMBS maturity would be extended to February 2016. In the meantime Valad would be appointed as asset manager on behalf of the noteholders. Its mission would be to maximize income by accelerating asset disposals and loan amortization over a four-year period.

Under this scenario:
- The noteholders retain control. Valad would be a third-party asset manager and not an equity stakeholder.
- This option is designed to achieve some value recovery for all note classes of either their principal capital and/or senior and subordinated deferred interest. The proposals involves repayment of 55% to 74% of A noteholder principal within 2.5 years; 100% of the Class A principal, interest and subordinated deferred interest within 4 years
- Class B, C and D noteholders achieve principal recovery of 14% to 100%; 0% to 100% and 0% to 10% respectively. The underlying idea behind this proposal is that something is better than nothing. Under the alternative option from TPG/Patron, class B, C and D noteholders get nothing.
- Valad’s management fees are about 5.6% less expensive over four years than envisaged under the current structure. Valad would earn 50% of the fees only after full repayment of A noteholder principal and deferred interest for classes B, C and D.

Possible objections
- Valad is proposing a 3.77% addition to the three-month Euribor rate on top of a 23 basis point coupon but there would be no repayments of the principal upfront
- Valad is not putting its own equity on the line, leaving class A noteholders with all the risk (100% loan-to-value)
- Valad has 20-years of experience in the Netherlands but some commentators say not in the office segment


Option 2: TPG/Patron ‘Credit Bid’
The option being put forward by TPG Capital and Patron Capital revolves around the acquisition of the defaulted senior loan and its security in an enforced sale by Utrecht Holdings, a special vehicle owned by private funds managed by TPG and Patron. Class A noteholders would receive 40% (EUR 143.5 mln) of the outstanding note balance (EUR 358.8 mln).

TPG and Patron aim to finance the acquisition through a new loan to class A noteholders with a 60% LTV and a EUR 215 mln bank consortium loan. Under this alternative, known as the ‘credit bid’, class B through D noteholders would be left empty-handed.

Under this scenario:
- Cash upfront would create a new capital structure. TPG and Patron propose paying down 40% of A noteholders’ principal on day 1, a significant de-risking as this creates a new debt position which is stable and tradable
- The partners are not seeking a full return on their investment until the A noteholders are repaid in full
- TPG and Patron have deep pockets, affording the opportunity to invest in upgrading the portfolio and enhancing sale opportunities
- Patron knows property. Its funds have invested in over 1.8 million m² of property across 13 countries since 1999. Patron and TPG have inspected 150 of the Uni-Invest assets, 85% of the total by value, in the last few months and talked to a lot of professionals on the ground
- 89% of a recently convened private class A informal steering committee, representing 72% of class A notes, have given a commitment that they will vote for the Credit bid if either the class B, C or Ds fail to back the consensual restructuring

Possible objections
- Class B, C and D noteholders get nothing
- Class A noteholders lose control of how the remaining 60% of their principal (minus 40% upfront payoff) is managed
- Critics argue that the option could lead to significant cash ‘leakage’ to equity of up to EUR 160 mln. This is because of the way proceeds from sales are divided between equity and debt. On the other hand supporters say the emphasis is on repaying noteholders before the consortium recoups its investment.
- The current asset manager remains in place

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