£894,530,000 commercial mortgaged backed securities by Indus (Eclipse 2007-1) PLC-
Adelphi Whole Loan
We refer to the Servicing Agreement dated 12 April 2007. Terms defined and references construed in the Master Definitions Schedule have the same meaning and construction in this letter unless provided otherwise.
We have been advised by the relevant Borrower that as at 19 October 2009 the requirements of Clause 14.7 (Loan to Value) of each of Adelphi Senior Loan (£214,622,248 (senior) facility agreement dated 6 March 2007) and Adelphi Junior Loan (£38,325,401 (junior) facility agreement dated 6 March 2007) had not been met. Accordingly a Loan Event of Default and an Appraisal Reduction Event had occurred and is outstanding in respect of Adelphi Senior Loan and Adelphi Junior Loan.
Please find attached a copy of the preservation of rights letter issued to the Borrower.
We note that it is purely a breach of loan to value covenant under the Adelphi Senior Loan and Adelphi Junior Loan and we are not aware of any cashflow issues or any default in interest cover ratio.
In our view, given the general adverse market conditions and the continuing performance of the underlying Portfolio, the default:
does not adversely affect the ability of Borrower to satisfy its current payment obligations in respect of the relevant Loan; and
is not materially prejudicial to the interests of the Issuer.
We believe that a Special Servicing Event has not occurred and appointing a Special Servicer for the Loan would be premature. It will unduly stress the cashflow from the Adelphi Portfolio due to the additional costs associated with Special Servicing which will not be commensurate with the benefits to any relevant party from Special Servicing.
Accordingly we do not propose to place the Loan under Special Servicing at the moment. We will closely monitor the Portfolio in accordance with our obligations and keep you apprised of any developments that may adversely affect it.”
So that’s an LTV breach on the loan but without the need to put the thing into special servicing - basically CMBS jargon for the state of default.
Why is this of interest? Mike Phillips at commercial property specialist EGi puts it well:
A Barclays loan made to Istithmar and secured by the iconic Adelphi building on the Strand, WC2 has breached loan to value covenants, but no default will be called, EGi can reveal.
The £253m loan, secured against the office building found in the art-deco former Adelphi hotel building, saw its 80% loan to value covenant breached earlier this year due to the decline in values seen across the property market.
Istithmar, part of the Dubai World group that last week asked for a standstill on debt repayments, bought the building for £325m in November 2006. The debt used to make the purchase was rolled up with other loans made by Barclays, and investors bought bonds secured against the income.
Last week, speculation abounded that Istithmar might be forced to sell property assets such as the Adelphi in order to raise capital to meet Dubai World’s wider corporate debt requirements. However, the fact that the Adelphi building is held with a CMBS loan portfolio would make any sale of this asset more complicated
Being held in a CMBS loan portfolio under special servicing would undoubtedly make any prospective sale even more complicated.
Lucky then, that Istithmar seems to have escaped it - so far.