In their latest U.S. Fixed Income Markets Weekly publication, JPMorgan Securities analysts examined the impact on CMBS of the potential Dewey & Leboeuf bankruptcy.
The New York law firm Dewey & Leboeuf has heading toward filing for bankruptcy. JPMorgan analysts cited an internal memo encouraging partners to seek alternative employment. The law firm has a;so decided to close its U.K. office.
They said that a bankruptcy leading to the firm's liquidation will also presumably terminate its office leases. This could have a considerable effect on two large securitized loans where the firm is a major tenant, analysts explained.
Although these loans are performing, considering their exposure in CMBS, investors should use caution in trading these deals until there is more certainty in the end result, according to JPMorgan analysts.
Specifically, as of the end of last year, they reported that Dewey & Leboeuf was the second biggest tenant, with a 23% exposure, at the 1301 Avenue of the Americas in New York. This is thelargest loan in the LBUBS 2006-C1 deal with at $421 million current balance, according to JPMorgan analysts.
The law firm is also the biggest tenant, with 35% exposure, at 1101 New York Avenue in Washington, DC, which is a $225 million loan.
This mortgage is split into two equally sized pari-passu notes that were securitized in the MLMT 2007-C1 offering (the seventh largest loan in the transaction) and the BSCMS 2007-PW17 deal (third largest), analysts reported.They added that the 1101 New York Avenue mortgage is of particular concern since its 2011 full-year NCF DSCR is 1.30x at 100% occupancy.
However, 1301 Avenue of the America, by contrast, has a much higher DSCR of 2.65x in the same time period, analysts said.