Barclays Capital said that the U.K. property group Mapeley could be facing insolvency as early as April 2009 if current efforts to raise capital are unsuccessful.

Mapeley has been a borrower in several European CMBS transactions in recent years and its insolvency could potentially trigger the default of securitized loans.

"Typically, CMBS loans are structured so as to be bankruptcy remote from the sponsor," said Mark Nichol, an analyst at Barclays in a note published this week. "The insolvency of Level One in 2008, however, triggered the default of loans, for which Level One was sponsor, in four different conduit transactions." 

Mapeley loans make part of five U.K. CMBS transactions which include Deco 6 - UK Large Loan 2 plc; Deco 8-UK Conduit 2 plc; Deco 11-UK Conduit 3 plc; Perseus (European Loan Conduit No. 22) plc and Taurus CMBS (UK) 2006-2 plc.


Barclays said that only the Mapeley Columbus whole loan has a B-note worth £165.4 million. "Prior to a default, payments are applied pro-rata between the securitized portion and the B-note," explained Nichol. "This switches to fully sequential upon a whole loan payment default. While the insolvency of a loan sponsor may constitute a loan event of default, it seems unlikely that this would be sufficient to trigger a switch of the whole loan waterfall from pro-rata to full sequential."


Nichol added that the risk to bondholders of a Mapeley insolvency is likely to be limited, even if the loans consequently defaulted because servicers were unlikely to enforce and sell properties in the current market. The Interest cover is currently strong for all five loans and servicers would most likely continue to use the rental income from the properties to service the loans.  "Similarly, the impact on bondholders of Mapeley raising additional debt is also limited, in our view, as the securitized loans are secured by ringfenced properties and so bond issuers would rank senior to unsecured Mapeley creditors in an insolvency," Nichol said.

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