A restructuring proposal for the REC Plantation 5 Plc CMBS deal was released last week.
The proposal includes a change in the waterfall of the voluntary loan repayments. The waiver proposes moving back to a modified pro rata waterfall including 50% pro rata and 50% sequential.
However, Societe Generale analysts noted that the current interest rate levels, which could be considered somewhat exceptional, imply significant breakage costs, and therefore weaken the recovery from the proposed property sale.
The deal, which was issued in 2006, is backed by a single office property in the City of London. The property's value recovered significantly in 2010 because of its location and the quality of the building, which is currently fully let.
"The proposal includes a high number of waivers, which apart from removing the LTV covenant, a problem much commented on during this crisis, shows the excesses from past structures, which will likely be abandoned in the new structures," SocGen analysts said. "This risk will need to be closely monitored in future deals."
According to analysts. the proposal also includes the possibility of a unit sale that would partly avoid swap interruption.
"This is possible due to the quality of the property which will potentially attract sub-investors requiring less leveraged structures," they said.