Structured finance: Phantom of the Opera

The Dutch property portfolio once financed by the first European CMBS to default on maturity has received the backing of five lenders following the syndication of its new loan.

ING Real Estate Finance and ABN Amro sold down €100 million of the €240 million loan which they provided last October to Dutch landlord Merin, formerly known as Uni-Invest. Until 2012, the company’s debt was securitised in the infamous Opera Finance (Uni-Invest) CMBS, arranged by Eurohypo.

Dutch private bank NIBC and UK lender Aalto Invest, a former CMBS noteholder, each took €40 million of the new loan. Austrian mortgage bank HypoNOE took a €20 million participation. ING and ABN Amro each retained €70 million.

The loan is secured by 152 of Merin’s 170 assets, mainly offices and industrial property. The sub-50 percent loan-to-value facility is priced at just more than 300 basis points.

The successful refinancing of Merin’s property stands in contrast to the situation four years ago when Opera Finance (Uni-Invest) was a test-case for resolving European CMBS gone wrong. Uni-Invest was taken private in 2002 by a consortium including Lehman Brothers. The securitised financing, which was initially €1 billion, was arranged by Eurohypo in 2005. Two years later, Uni-Invest pulled a planned €373 million IPO which would have reduced its gearing.

As maturity loomed in early 2012, bondholders voted on two resolutions proposed by Eurohypo’s advisor, Cairn Capital: a consensual asset management strategy by Valad and a credit bid by TPG and Patron Capital. Class A bondholders voted for the latter, which guaranteed repayment of 40 percent of the outstanding €359 million owed to them. Classes B through D got nothing.

Since the TPG/Patron takeover, the rebranded Merin has taken a fresh approach to managing its properties. “The quality of the portfolio was not good three years ago,” says Merin’s chief financial officer Roel de Weerd. “There was a lot of vacancy and we needed to improve the clients’ satisfaction. We’ve made great progress with occupancy and we have sold off some empty buildings and invested in the core portfolio.”

The overall portfolio, which now has a market value of more than €500 million, has been streamlined from 203 to 170 buildings. The core properties have an occupancy rate of 81 percent, up 13 percent from 2013. In total, €70 million has been invested, funded through asset sales and operational cashflow. Refinancing efforts began in early 2015.

During the 2012 takeover, TPG and Patron had injected €144 million of equity. Around €215 million of outstanding senior CMBS notes had been rolled into a bond due in mid-2015, prompting the decision to seek debt in what de Weerd describes as “good market conditions”.

“When we started the process, we expected that the refinancing would come from UK banks. However, we found that banks without teams on the ground in the Netherlands found the deal challenging due to the company’s negative reputation at the time. It was easier for us to demonstrate to the local Dutch lenders that Uni-Invest did not exist anymore. In fact, of the seven people in the management team, six are new to the company.”

ING and ABN Amro took an early interest in the deal. ING had previously financed an office acquisition for Merin in March 2014. Merin requested that the two banks retain at least half of the loan and syndicate to only a few lenders. The firm played an active role in the syndication process, de Weerd says.

Merin’s aim now is to divest some underperforming assets and continue to increase its focus on the operational side of the business.