gemini (eclipse 2006-3) plc recovery options assessment presentation by cbre loan servicing as...
TRANSCRIPT
GEMINI (ECLIPSE 2006-3) PLC
Recovery Options Assessment
Presentation by
CBRE Loan Servicing as Special Servicer
8 August 2012(All figures and forecasts as at 11th June 2012 unless otherwise indicated)
CBRE Loan Servicing | Page 2
Disclaimer This presentation has been prepared by CBRE Loan Servicing Limited (“CBRELS”). CBRELS is acting solely in its capacity as Special Servicer for and on behalf of certain parties including GEMINI (ECLIPSE) 2006-3 PLC and the Noteholders thereof. CBRELS does not provide and has not provided investment advice or a recommendation to you in relation to this transaction and/or any related securities described herein.
This presentation is not and is not intended to be an approved prospectus prepared in accordance with Part VI of the Financial Services and Markets Act 2000 (“FSMA”) and it contains no offer to the public within the meaning of article 85 of the FSMA, the Companies Act 1985, the Companies Act 2006, or otherwise and does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities. The contents of this presentation should not be construed to be a complete description of all relevant terms and conditions and should not be relied upon as such.
No undertaking, representation, warranty or other assurance, express or implied, is given or made by or on behalf of CBRELS or any shareholders, directors, officers, employees, consultants or advisers or any other person as to the accuracy, fairness, completeness or sufficiency of the information, opinions or beliefs contained in this presentation.
This presentation does not constitute an offer or agreement to sell, or a solicitation of an offer or agreement to buy, any security or instrument or to participate in any particular trading strategy. In all the cases, no liability is accepted for any loss, cost or damage suffered or incurred as a result of the use of or reliance upon any such information or opinion which is attributable to any errors, inaccuracies, omissions or misstatements (whether negligent or otherwise) contained in this presentation.
No representation is made as to the reasonableness of the assumptions made within or the accuracy or completeness of any modelling, scenario analysis or back testing. All opinions and estimates are illustrative only and given as of the date hereof and are subject to change.
Neither the receipt of this presentation by any person nor any information contained herein or subsequently communicated to any person is to be taken as constituting the giving of investment advice by CBRELS (within the meaning of the FSMA, or the rules of the Financial Services Authority (the “Rules”)) and no such person should expect any member of CBRELS to owe it any duties or responsibilities of the kind referred to in those Rules in connection with any transaction involving professional advice.
This presentation has been delivered to you on the basis that you are a person into whose possession this presentation may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located. Persons who are not resident in the United Kingdom should inform themselves about, and observe, any applicable legal or regulatory requirements in their jurisdiction. This presentation is confidential and may not be distributed, reproduced, discussed, published, quoted or referenced to, in whole or in part.
CBRE | Page 3
Transaction Summary as at 11 June 2012
CLASSPRINCIPAL BALANCE RATING AS AT 11/06/2012
Fitch Moody’s S&P
Class A 569,152,561 CC Caa3 BB+
Class B 27,763,540 CC Ca BB
Class C 101,799,645 C N/R B+
Class D 81,439,716 C N/R B-
Class E 70,206,588 C N/r D
850,362,050
Issuance Summary
SENIOR LOAN
Outstanding Balance £850,362,547
Maturity Date 17 July 2016
Current LTV incl MTM as at 20/04/2012
232.47%
Senior Swap Maturity Date17 July 2026 - Barclays has an Option to Break in July 2016
Next Period Interest Rate 1.70063%
Total Forecast Loan Interest Payment Over next 12 months
£14,818,611
Total Forecast Hedge Payment Over next 12 months (senior & junior)
£35,017,000
The Loan
JUNIOR LOAN
Outstanding Balance £105,238,549.81
Maturity Date 17 July 2016
Current LTV incl MTM as at 20/04/2012
254.88%
Junior Swap Maturity Date 17 July 2016
The subordinated Junior Facility remains in place.
LIQUIDITY FACILITY
Total Liquidity Facility: £64,000,000.00
Total Liquidity Drawings to Date: £21,849,242.93
Total Liquidity Facility Remaining Undrawn:
£42,150,757.07
PROPERTY PORTFOLIO
Total Assets: 35
Market Value as at 31st March 2012: £437,750,000
CBRE | Page 4
Hedging Analysis
Forecast Hedge MTM as at 11/06/2012 with sensitivities against change to GBP libor forward curve
All figures assume no termination event occurs
£’s -75bps -50bps -25bps 0bps +25bps +50bps +75bps
11-Jun-12 -282,228,116
17-Jul-12 -362,475,937 -331,619,415 -302,644,607 -275,507,370 -250,132,873 -226,425,141 -204,274,420
17-Jul-13 -320,903,929 -292,678,708 -266,189,120 -241,429,041 -218,355,429 -196,896,642 -176,960,869
17-Jul-14 -277,935,909 -252,008,930 -227,643,613 -204,893,036 -183,767,220 -164,205,103 -146,243,783
17-Jul-15 -236,246,759 -212,042,800 -189,048,902 -167,947,869 -147,328,712 -128,832,203 -111,980,166
17-Jul-16 -198,546,515 -176,303,428 -154,601,168 -133,425,694 -112,762,889 -92,599,616 -72,922,901
Source: Chatham Financial
CBRE | Page 5
THE ISSUE
In August 2011 the Borrower advised that HMRC was taking action to recover around £21m relating to unpaid VAT and associated interest and penalties. Despite numerous requests the Borrower has not provided the information requested in relation to an apparent misallocation of funds leading to this non-payment.
The Special Servicer has corresponded and held discussions with the Borrower to:
• Establish how the non-payment occurred.
• Set out the basis upon which the Special Servicer might contemplate the payment of the outstanding VAT amount.
• Discuss other options that would enable a continued consensual workout of the loan.
No satisfactory response has been received from the Borrower in relation to the above.
HMRC served statutory demands on 29 Borrower entities and 2 General Partners in November 2011. However, HMRC agreed to refrain from proceeding with winding up petitions until the end of May 2012, pending the outcome of a proposed marketing campaign by the Borrower’s advisers (Lazard) to find a purchaser for the Loan.
We understand HMRC are “staying their hand” pending the outcome of the loan sales proposal
THE LOAN SALE OFFER
Following a marketing campaign Lazard has identified a potential purchaser for the Loan, who has provided a final indicative offer equating to £120 million, based upon an assumed MTM on the senior and junior interest rate swaps of £275M with an option for Class A Noteholders only to participate alongside the buyer in the equity of the Borrower.
RECOVERY OPTIONS
The Special Servicer agreed to consult informally with certain Class A Noteholders who were prepared to become restricted in relation to:
• The indicative offer for the loan sale.
• The other options available to the Special Servicer in this regard:
– Payment of the outstanding VAT from the Liquidity Facility
– Enforcement with full termination of the hedge
– Enforcement without full termination of the hedge
The implications of the various options is considered within this document.
Issues & Options
RECOVERY OPTION ASSESMENT As at 11 June 2012 unless otherwise indicated
CBRE | Page 7
Loan Sale Option
Benefits
• Avoids immediate enforcement and associated costs.
• Provides some certainty on recovery whist allowing some Class A Noteholders to participate in the potential upside
• Mitigates against further transaction risk and real estate risk
Issues/Risks
• Special Servicer has no power to execute a loan sale
• Requires Note Trustee consent which introduces considerable execution risk
• Offer subject to significant conditionality and due diligence requirements
• Requires payment of at least £20M to unsecured creditors
• Limited participation in potential recovery in hedge MTM and/or real estate markets available for Noteholders
Key Terms
• Initial Proposal received 27 April 2012. Subsequent offer received 20 July 2012
• Purchase of Senior loan by Special Purpose Vehicle
• Results in an upfront Cash to be distributed to Noteholders
• Subsequent offer dated 20th July 2012 enabled Class A Noteholders to participate in the purchase price by way of exchanging some of their Notes for equity ranking pari passu with the new equity.
• Offer is subject to due diligence on real estate and the Loan, the Issuer and the Borrowers structure, review of all HMRC correspondence, Note Trustee consent and purchasers investment committee approval
• Offer based upon an assessment of “Gross Enterprise Value” and subject to deductions representing the full value of the Swap MTM; Capex and Transaction Fees; Liquidity Fee Repayment; and Payment to HMRC in relation to outstanding VAT.
FIANCIAL TERMS AS PER 20th JULY 2012 PROPOSAL
Net Proceeds available for Purchase of Senior loan £120M
Net Proceeds assuming hedge break cost of £282M as per 11/6/12 (like for like with other scenarios in this document)
£113M
CBRE LS expresses no views on the accuracy of those figures and refers Investors to page 3 and 4 of this presentation
CBRE | Page 8
Payment of the Outstanding VAT and ongoing consensual workout
Benefits
• Avoids immediate crystallisation of hedging MTM at current high levels
• Avoids enforcement and associated costs
Issues/Risks
• Misallocation of VAT monies by Borrower ignored
• Unsecured creditor (HMRC) prioritised over Noteholders
• Risk of other unsecured creditors arising – will also have to be prioritised
• Risks of Portfolio underperformance due to continued lack of capital and incentivised asset management resource
• Continued reliance on sponsor co-operation
• No change to Asset/Property Manager possible
• No sales of problem assets possible
• Risk of Borrower filing for insolvency which would lead to enforcement in any event
• Quarterly hedge payments continue placing considerable stress on deal cashflows
• Depletes Liquidity Facility leading to exhaustion by Jan 2014 (base case) and Note EoD
£Ms Downside Case Base Case Upside Case
Discount Rate NPV NPV NPV
8.00% 93.2 163.0 221.9
10.00% 86.7 151.7 206.1
12.00% 80.8 141.4 191.8
Total Principal Recoveries 91.8 184.0 265.5
Interest Shortfall to Class A Yes: 2013 Yes: 2014 Yes: 2014
Downside Assumptions
Further Payment of circa £13M to additional unsecured creditorsValues decrease by 2.5% pa below base caseMTM rises due to forward curve falling by 0.5%
Base Case Assumptions
Payment of £21M to HMRC. No payment to other unsecured creditors
Upside Assumptions No payment to unsecured creditorsValues Increase by 2.5% per annum above base caseMTM falls due to forward curve rising by 0.5%
Financial Projections From Jul-12 Jul-13 Jul-14 Jul-15To Jul-12 Jul-13 Jul-14 Jul-15 Jul-16£M's
NOI (after Capex) 34.01 36.15 37.03
36.98 Net Interest Paid under the Swap (Junior and Senior) -35.02 -35.67 -34.33 -39.69Default Interest Paid under the Swap Liability to the hedge counterparty (as at end of the period) -133.43Liquidity Facility drawings (including VAT payment in 2012) -33.85 -8.30 LF maxed out Repayment of the Liquidity Facility 0.36 7.67 4.79Total drawings on the Liquidity Facility (max. of 64,000,000) -21.85 -55.70 -63.64 -55.96 -51.18
CBRE | Page 9
Enforcement with Full Termination of the Hedge
£Ms Downside Case Base Case Upside Case
Discount Rate NPV NPV NPV
8.00% 139.4 165.6 193.4
10.00% 130.2 154.5 180.2
12.00% 121.9 144.3 168.1
Total Principal Recoveries 144.0 180.5 219.1
Interest Shortfall to Class A Yes: 2015 Yes: 2015 Yes: 2015
Downside Assumptions
Values decrease by 2.5% pa below base caseNo change to sales schedule
Base Case Assumptions Poor Performing or capital hungry assets sold early
Upside Assumptions Values Increase by 2.5% per annum above base case
No change to sales schedule
Benefits
• Avoids payment to unsecured creditors now and in the future
• Removes the need for Sponsor reliance and enables Special Servicer to exercise control over portfolio through Administrator/Receivers and appointment of new Asset/Property Managers.
• Enables sales of poor performing assets whilst other assets can be held for longer term recovery
• Avoids payment of empty rates. Forecast to be circa £2.6M of savings in the first year.
• Quarterly hedge payments cease
• Enables Senior Lenders to take the benefit of circa £3M held on escrow for Junior lenders
Issues/Risks
• Crystallises hedging MTM at relatively high levels
• Default Interest is due on unpaid hedge MTM liability
• All surplus cashflows diverted to Hedge Counterparty to pay down hedging
• Substantial additional costs incurred through enforcement process, appointment of Administrators/Receivers and new Asset Managers. Estimated to be circa £2M - £2.5m in 1st year
• Payment of loan interest from Liquidity Facility as all rental and capital receipts from the property portfolio flow to Barclays will put pressure on cashflows and lead to exhaustion of LF by April 2015 (base case) and Note EoD.
Financial Projections From Jul-12 Jul-13 Jul-14 Jul-15To Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 NOI (after Capex) 34.01 31.67 26.10 20.93Net Interest Paid under the Swap (Junior and Senior) Default Interest Paid under the Swap -5.36 -5.09 -2.82 -0.51Liability to the hedge counterparty (as at end of the period) -282.23 -179.69 -91.71 0.00 0.00Liquidity Facility drawings -14.45 -14.13 -13.57 LF maxed out Repayment of the Liquidity Facility 24.85Total drawings on the Liquidity Facility (max. of 64,000,000) -21.85 -36.30 -50.43 -64.00 -39.15
CBRE | Page 10
Enforcement Without Full Termination Of The Hedge
£Ms Downside Case Base Case Upside Case
Discount Rate NPV NPV NPV
8.00% 74.1 179.3 296.0
10.00% 70.3 168.5 277.5
12.00% 66.7 158.5 260.4
Total Principal Recoveries 48.3 188.8 344.9
Interest Shortfall to Class A No No No
Benefits
• As for previous “Enforcement” slide except quarterly hedge payments continue PLUS:
• Allows sales of problem assets and added asset management resource without crystallising the hedge immediately.
• Diversifies risk of crystallisation of hedge MTM at intervals over a longer time period
• May allow lenders to benefit from a reduction in hedge MTM should interest rates rise
• Avoids payment of Default Interest on hedge MTM
• Places less stress on cashflows, which provides greater stability and avoids exhaustion of LF and Note EoD.
• May allow retention of limited amount of capital from sales for reinvestment in asset management initiatives in portfolio.
Issues/Risks
• Requires property sales to facilitate ongoing hedge repayments
• Hedge MTM is not fixed and could rise over the sale period
• Quarterly payments continue to be made on the Hedges until it is fully paid down.
Downside Assumptions
Values decrease by 2.5% pa below base caseMTM rises due to forward curve falling by 0.5%Sales schedule accelerated to pay down higher MTM costs
Base Case Assumptions Poor Performing or capital hungry assets sold early
Upside Assumptions Values Increase by 2.5% per annum above base case
MTM falls due to forward curve rising by 0.5%Reduced Sales schedule to reflect lower MTM costs
Financial Projections From Jul-12 Jul-13 Jul-14 Jul-15To Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 NOI (after Capex) 34.01 31.67 26.10 20.93Net Interest Paid under the Swap (Junior and Senior) -35.02 -29.34 -18.48 -3.81Default Interest Paid under the Swap
Liability to the hedge counterparty (as at end of the period) Details not disclosed as confidential Liquidity Facility drawings -10.00 -11.38 -8.23 0.00Repayment of the Liquidity Facility 0.00 0.00 0.00 5.53Total drawings on the Liquidity Facility (max. of 64,000,000) -21.85 -31.85 -43.23 -51.46 -45.93
CBRE | Page 11
CONTACTS
JOHN SMITH
SENIOR DIRECTOR
Special Servicing
CBRE Loan Servicing
Henrietta House
Henrietta Place
London
W1G 0NB
Tel: +44 207 182 2255
PAUL LEWIS
SENIOR DIRECTOR
Special Servicing
CBRE Loan Servicing
Henrietta House
Henrietta Place
London
W1G 0NB
Tel: +44 207 182 2871
CECILE IMBAULT
ASSOCIATE DIRECTOR
Special Servicing
CBRE Loan Servicing
Henrietta House
Henrietta Place
London
W1G 0NB
Tel: +44 207 182 2816