Sidley Austin's Global Finance Group

Jason Richardson

Jason Richardson is a partner in Sidley Austin's Global Finance Group.  His main areas of practice are structured finance, securitization, banking and property finance. Mr. Richardson has acted for several arrangers of UK and European CMBS transactions (including synthetic CMBS transactions) and, more recently, for sponsors, lenders, servicers and investors in connection with restructurings of CMBS transactions and commercial real estate loans (both securitized and non-securitized).

Nick Brittain

Nick Brittain is a partner in Sidley Austin's Global Finance Group. He has a broad range of experience, but practices principally in the area of structured finance, with a particular focus on CMBS transactions, advising in relation to on-going servicing issues and cross-border loan restructurings.  He was involved in one of the first UK CMBS restructurings, acting for a subordinated lender and principal arranger of the restructuring and continues to advice on strategic issues for clients with CMBS and other securitised exposures.

Aurore Martial (AM): Jason, you have been working on many CMBS and real estate restructurings recently; and you just closed the Toys R Us CMBS deal last week – would you be able to tell us about the evolution of the UK and European CMBS market since 2007?

Jason Richardson (JR): Programmatic issuance of European CMBS ceased in 2007 and does not look like it's returning soon. New issuance has been limited to a few one-off transactions so far and many deals have been restructured rather than refinanced as originally envisaged. The active involvement of investors in the origination/restructuring of transactions has been one of the most significant recent developments in the European CMBS market. Pre 2007, we rarely had any contact with prospective investors while the deals were being put together. Since 2007, investors have been actively involved in restructuring transactions by participating in ad-hoc steering committees and have had much more input into the new issuances than they traditionally had. The recent Debussy DTC PLC transaction was an evolution of that trend. In that transaction two investors in the original Vanwall CMBS transaction agreed with Toys R Us to refinance it in part by the issuance of new CMBS notes without the involvement of any arranger bank. They also provided bridge financing while the Debussy notes were being rated. The Debussy notes included many features which were proposed by a group of prominent CMBS investors earlier this year, such as giving investors direct contractual rights against the servicer. We understand that a number of market participants are looking at similar structures.

AM: Could you talk us through a difficult transaction that you managed to resolve recently?

JR: We recently acted for the facility agent of a non-securitised loan note issue collateralised by a portfolio of non-performing German real estate assets. The loan notes were maturing and the lenders did not want to enforce the security as that would have crystallised a loss. The lenders also did not want simply to extend the loan notes and the existing sponsor (which was also the portfolio manager) was not prepared to manage the portfolio actively going forward. As an alternative to formal security enforcement, we assisted the lenders to implement a consensual restructuring which involved not only an extension of the debt but also a change of portfolio manager with instructions to implement an accelerated property disposal plan. This required careful legal structuring to avoid the borrower companies becoming insolvent during the process.

AM: In general, the UK is renowned for being lender friendly, Continental Europe borrower friendly – could you tell us more about particularities and challenges specific to the UK and Continental Europe that you came across recently?

JR: We have worked on a number of loans collateralised by German commercial real estate assets which have experienced distress. Dealing which such loans is more difficult than would typically be the case in the UK because the legal and insolvency regime in Germany is generally more borrower friendly. Even accelerating a loan based on a major covenant breach can be problematic under a German law governed loan agreement and, in many cases, it is in practice only possible to accelerate a loan following a major payment default or the commencement of formal insolvency proceedings against the borrower.

AM: It looks like the lending market has picked up over the past 6 months, we also have more and more debt funds. Are they shying away from difficult transactions still? Have you seen much mezzanine and bridge lending around?

Nick Brittain: In our experience, the real estate private equity funds have not shied away from difficult transactions. We saw competition between such funds for the underlying assets on the Opera Finance (Uni-Invest) and the Opera Finance (CMH) transactions. We have also acted for a number of such funds in a number of complex financing transactions. On the mezz side, we have seen some competition on pricing, but it has principally been down to existing relationships between equity and the lenders (usually through the mezz lenders) and a willingness to work with equity on the right corporate structure. Mezz transactions can be difficult, but that's what we find interesting about the space.