European CMBS issuers need to reconsider how they structure workout fees into their deals, according to Standard & Poor's analysts, who recently cautioned investors about the potential for these fees to disrupt payments even for senior noteholders.
Workout fees on corrected loans are relatively new for European CMBS, being incorporated in transactions only since 2003. Stateside investors venturing into U.K. CMBS apparently sparked the trend. David Beale, director in S&P's structured finance group in London, said the workout fees generally show up in deals when GMAC or Lennar buy the junior tranches, then have the special servicing rights assigned to them. However, there are exceptions.