Wednesday 17 January 2018

Lenders owed €375m by REO asked to come forward for debt talks

Donal O'Donovan

Donal O'Donovan

LENDERS owed €375m by Real Estate Opportunities (REO) have been asked to identify themselves so they can begin debt restructuring talks before the loans fall due in January.

REO is a listed property investment vehicle backed by Treasury Holdings, the real estate giant founded by developers Johnny Ronan and Richard Barrett.

The €375m was borrowed against a range of high-profile Irish assets, including the Stillorgan Shopping Centre in Dublin, Bank of Ireland's headquarters on Mespil Road in Dublin, the FAS offices on Baggot Street and KPMG's Dublin offices.

Rather than borrowing against them directly, REO used a Commercial Mortgage Backed Security (CMBS) -- a complex way of raising finance that allows different bondholders to take different levels of risk.

The money was raised in 2006 through a CMBS vehicle called 'Opera Finance'. The bonds in the CMBS have traded in the secondary market over a number of years and are mainly held outside Ireland.

At the peak in 2008 the portfolio was valued at €570m, but had fallen to €290m when valued in February 2011.

Plunging

REO is up to date with the debt payments to Opera Finance and occupancy rates have held firm at 98pc, but plunging property prices combined with the slim chances of the debt being either repaid or re-financed by alternative lenders means the structure is heading for a financing cliff.

Yesterday, German bank Eurohypo said it has hired London-based Cairn Capital to act as financial adviser and Sidley Austin as legal adviser, to provide advise on how to manage the deal.

The German bank is not a lender but it put the original financing deal in place and stayed on as "loan servicer".

In addition to the €375m owed to bond holders, REO owes NAMA €85m as part of the same deal. NAMA and Treasury Holdings are already involved in a number of court cases over property debts, but none of the cases currently involve the Opera portfolio of assets.

The NAMA loans rank below the bonds in the queue to be repaid if the portfolio is sold off. At current prices that would leave NAMA empty handed, but under the contracts controlling the debt its consent may be needed if the structure is to be broken up or amended. That could allow the bad bank to claw back a "consent fee" for facilitating a deal, even if NAMA is out of the money on the loans.

Irish Independent

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