Commentaries

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A dark hour for CMBS

The last week has been a bit of a shocker for Europe’s already crumbling commercial mortgage-backed securities market (CMBS).
Investors have had to cope with steep declines in the value of their bonds and a wave of downgrades by rating agencies.

Now, to add insult to injury, there has been a jump in legal and structural issues. Bondholders are having their rights diluted over or taking on fresh liabilities they didn’t even realise they had.

In France a judge this week sided against bondholders who wanted to take control of a Paris-office skyscraper formerly owned by a Lehman Brothers unit. The loan defaulted earlier this year, but a Paris judge approved a safeguard plan proposed by its owners, which include Lehman’s receivers Pricewaterhouse Coopers. Creditors argue that the ruling risks damaging property investment in France.

And in the UK there is the never-ending saga of White Tower 2006-3. This portfolio of elegant city offices was once the property empire of billionaire Simon Halabi, who refinanced them with a CMBS arranged by Soc Gen.

Russia says “Da” to asset-backed debt

It’s interesting to see Russia proposing a new law to encourage a domestic securitisation market for consumer debt. Russia is still a novice when it comes to asset-backed debt but seems to have cottoned on to something that not all western regulators have fully grasped — securitisation may have helped get us into the current crisis, but we are also going to need it to get us out of it.

US and European banks simply don’t have enough capital to finance both the loans they kept on their balance sheet and those coming due that were previously funded in by the shadow-banking system. They need to find ways to raise new capital and transfer risk to capital market investors. In short, they need securitisation.

European Commission defanged by hybrid debt

Fans of the weird and wonderful world of hybrid debt will have enjoyed the European Commission’s U-turn with Belgian bank KBC.

The EC wants banks that have benefitted from state aid to “burden share’’ with private sector investors by deferring optional coupons on their subordinated bonds. That sounds simple enough — after all the essence of subordinated debt is that it can defer interest without counting as a default. Burden sharing, whether imposed by the EC or not, is what hybrid debt is all about.

Clear Channel’s debt covenant creep

There’s been a rush to return to business as usual among big banks itching for deal-making and investors wanting to ease the pain from last year’s financial crash.

And there’s a long list of things to be thankful for as we come up to the one-year anniversary of Lehman Brothers’ bankruptcy. Financial system stabilized, check; government committed to supporting basket-cases like Fannie Mae and Freddie Mac, check; the economy improving, check; credit flowing to needy companies, check.

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