Bondholders affected by a troubled UK real estate securitisation deal were given guidance on a “short but intricate issue of construction” today.
Mr Justice Henderson, at the High Court in London, ruled today that rent from properties backing the deal should be classified as “interest,” while proceeds from the sale of any of the properties should be treated as “principal”.
The case involves the Gemini CMBS which is supported by a £919m loan taken out on 35 UK properties by a number of Guernsey-related limited partnerships in 2006. The securitisation was effected by a company called Gemini (Eclipse 2006-3) Plc.
According to the ruling, the intention behind the deal was that rental income derived from the properties would pay the interest on the loan. This ran smoothly until the financial crisis. However from October 2009 the borrowers ceased to pay the interest in full.
In addition, between 2006 and 2012 the value of the properties fell from £1.1 bn to £440m.
The fall in value and the failure to pay interest led to a default, and in 2012 the loan was accelerated so the full amount became due.
Today’s ruling was brought about by CBRE Loan Servicing, the master servicer to the agreement.
At the moment, the admininistrators and receivers collect the rental income from the properties in the portfolio. Then, after costs and exepenses are deducted, they hand the money to CBRE to administer and distribute, according to the contract, between the various classes of notholders.
The noteholders wished to remain anonomous and were not named in the proceedings or the judgment.
In his ruling, Henderson J said he was backing the case argued by the Class A noteholders, the largest group. They held an inital principal of £615m in 2006, compared with the next-largest group, the Class C noteholders, who held £110m.
Henderson J said that, because of the price-sensitive nature of the ruling a draft copy of the judgment was made available on the Irish Stock Exchange on September 29. Apart from a few minor changes to phrases, today’s formal ruling is no different, he said.
CBRE Loan Servicing Ltd v Gemini (Eclipse 2006-3) Plc and others (Henderson J) 7 October 2015.
John Brisby QC and Sharif Shivji (instructed by Paul Hastings [Europe] LLP) for the claimant.
