Leda leaves CMBS investors in the lurch

Leda Property Group yesterday advised that it is unlikely to be able to repay $300 million of commercial mortgage-backed securities on the scheduled maturity date of February 22.

Leda blamed the GFC and flow-on effects in the domestic debt capital market on its inability to secure refinancing facilities in time to meet the scheduled maturity date.

Leda said it will continue negotiations with its bankers and is hopeful of reaching a satisfactory outcome within coming months. However, while missing a scheduled maturity date is not an event of default as such under CMBS structures, the issuer is required to immediately commence liquidation of the underlying assets, such that the final maturity date, which is typically 18 months later, is met.

The Leda CMBS were issued by Leda CMBS Pty Ltd with the security trustee being Perpetual Trustee Company. The issue was undertaken in February 2006 and comprised four tranches of securities: $205 million, Class A, rated 'AAA'; $25 million, Class B, rated 'AA'; $30 million, Class C, rated 'A'; and $40 million Class D, rated 'BBB'. The underlying security is five shopping centres and the final maturity date is 22 August 2011.

In its last CMBS Performance Watch as at 30 June 2009, Standard & Poor's reported that the shopping centres had 98 per cent occupancy and that the ratings on the CMBS tranches had remained unchanged since issuance. Loan to valuation ratios for each tranche had improved slightly, as had debt service coverage ratios. The CMBS issue is non-amortising.

Leda Property Group is a private property developer and investor. That it has not been able to secure refinancing is not surprising.

Investors and lenders remain wary of commercial property and while shopping centres are generally considered the safest and most reliable of property assets, they are no longer as attractive since the distress emerged within Centro Properties. Moreover, bankers are actively seeking to reduce their exposure to the sector rather than take on more.

Westpac, for example, yesterday disclosed that commercial property lending is now less than 10 per cent of gross lending, down from 13 per cent a year ago. Similar sentiments apply at all big banks.

While there were no scheduled maturities missed by CMBS issuers in 2009, this year is likely to be different.

The volume of maturities is greater and it seems the year is not getting off to a good start.

Scheduled maturities for CMBS for 2010 exceed $1.8 billion on this newsletter's estimates.