The heavily indebted Gemini secondary regional property portfolio has gone into administration.
Special servicer CBRE yesterday applied to the Royal Court of Guernsey for the appointment of Deloitte as administrator to four companies that own the 35-strong Gemini portfolio. The package of properties has seen value plummet from £1.2bn in the boom to just £437m this year.
The move came after borrowers to the portfolio, which was built up and is managed by Propinvest, failed to repay a £950m loan after accelerated demands from CBRE.
A statement to the stock exchange said CBRE decided to accelerate the loan and commence enforcement action in light of a dispute over a £15m unpaid VAT bill, and its view that a proposed sale of the loan would not “maximise recoveries”.
It said that the borrowers and their advisers, Lazard, had explored the possibility of a sale of the loan which resulted in an indicative offer being made.
However, when compared with enforcement action the special servicer concluded that a sale of the securitised loan would not be the best option to pursue to recovery money for bondholders which invested in the debt.
It added that it had informally consulted with a number of bondholders, whose support would be crucial to any sale, and found “an overwhelming majority….indicated that they do not favour a sale of the loan”.
CBRE has also struck an agreement with Barclays to prevent the immediate crystallisation of a £230m interest rate swap, which would need to be repaid ahead of any bondholders, in favour of repayment “over an agreed period”.
This agreement and the prospect of a winding-up petition by HMRC to recover the unpaid VAT led CBRE to conclude that its decision was the best route to recoup the most money for bondholders and protect them from any action by HMRC.
The four companies now in administration are: Thistle Investments Limited, Palace Investments Limited, Eagle GP1 Limited and Eagle GP2 Limited. The Companies are the general partners of each of the Borrowers.
Alongside this application, the Special Servicer also applied for the restoration of Eagle GP 2 Limited to the Register of Companies, as it had previously been struck off the register.
A statement from Propinvest said: “We are both surprised and disappointed with CBRE’s decision, particularly as it was taken before bondholders had been given the chance to consider the very credible alternatives at the meeting that was due to take place on 5 September, and that it has resulted in the irretrievable loss of the £80m of value that KKR/Westbrook placed on the maintenance of the existing corporate structure and the preservation of the swap.
“In contrast, CBRE’s deal with Barclays (which was not necessary, as CBRE is well aware that HMRC had no immediate intention of enforcing any repayment as it hasn’t done since 2008) seems to involve a time-constrained sale of the properties that will entitle Barclays to be paid a swap termination fee (which, at today’s rates, would be £280m) before bondholders receive anything.
“It will also entitle CBRE to continue to be paid its substantial special servicing fee, other professional fees and a further fee on the liquidation of the assets. Indeed, Barclays seems to continue to be the main beneficiary of the opaque swap, securitisation and intercreditor structure that it put in place in 2006 and which, even when CBRE’s highly optimistic portfolio valuation of £440m is used, is likely to result in a recovery to bondholders (who have suffered no loss as a result of the VAT shortfall) of less than £100m of their £950m investment after super-senior creditors have been paid.
“Finally, it is worth remembering that HMRC is merely an unsecured creditor ranking way behind the secure creditors including Barclays, the liquidity facility provider, the bondholders and, of course, CBRE as servicer of the bondholder loan.”
bridget.oconnell@estatesgazette.com
