Senior and junior loans - the 70% LTV debate

One of the key planks on which NAMA is posited is that it is trading in loans and that those loans are at about 70% LTV (or were at the time the loan was issued).

Meanwhile in London, Simon Halabi’s property empire has collapsed:
ftalphaville.ft.com/blog/2009/08 … bs-crunch/

From the Bloomberg story quoted within the FTAlphaville piece:
bloomberg.com/apps/news?pid= … smfCnmea7c

So some interesting things in a readover to the wider CMBS market.

There is a significant amount of equity and mezzanine lending going on.
Equity and mezzanine have both been wiped out, that is a zero recovery rate for those loans.
Senior is under water.
Pension and investment funds were buyers of mezzanine and equity.

Market price is already perilously close to NAMA buying at a loss in the best case:
70% LTV @30% discount = 49% LTV, current value = 56% of peak.

And some questions:
How many of the pension and investment funds were leveraged?
Who did they borrow from?
Were individuals also leveraged buying mezzanine and equity?
How much of the debt that NAMA will buy is junior debt?
Is it really 20 bn as per 2Pack?

If it is the case that NAMA is buying 20 bn of private equity loans secured on mezzanine and equity tranches of commercial property/development loans, then NAMA is paying pretty much par for the senior loans as the mezzanine and equity loans are worthless…

Listen you, in your Ivory Tower, you have to evaluate each loan separately, the Commission said so, and no you can’t see the loans before you ask.

So just stop!

Signed:

A. Ahearne

NAMA will take loans off the banks books which were advanced against Commercial . It will not be getting much in the line of securitised stuff.

About €30bn according to Alan Ahearne today or yesterday on the radio.

  1. I said €20bn is private equity related . These are loans advanced to syndicates to buy shopping centres in Budapest and Hotels in Berlin …and stacks of that €20bn were invested in London , possibly even half. Private equity tended to buy COMPLETE developments with TENANTS , not to develop and tenant . Please note !

  2. The other €10bn is development related and is comprised of the likes of empty office blocks in Sandyford and shopping centres everywhere you look .

Junior and Senior does not come into it really as the assets had not been securitised bar possibly bar some covered bonds .

Had they been securitised there would have been tranching into junior mez and senior for rating purposes and sale but these are lying around on the books .

2Pack, whether they have been securitised or not, loans and loans for equity can still be divided into junior and senior, no?

As in senior = first lien
Junior = equity based ownership, i.e. ownership of the private company that is holding the senior loan.

There’s the further complication of cross-collateralisation and personal guarantees relating to the remaining equity (effectively a second lien between senior and junior?), but even leaving that aside, it looks to me that at least a proportion of the private equity loans are for junior positions? (Like the Caisse Des Depots position in Halabi).

I assume that may be possible, yes . I would be surprised if any lending institution in Ireland was senior to another in most cases though. Someone nearer the banks should comment really . I am assuming that a building with 4 lenders has parity among lenders for their security in most cases .

BUT Halabi defaulted on a SECURITY not on a LOAN .

Here is an interesting problem from the UK . 20% of ALL commercial loans fall due in 2009 . They must be paid up .

It was highly likely up to 2 years ago that they would have been securitised by now rendering the short loan term inconsequential …but no longer .

ftalphaville.ft.com/2009/06/29/5 … -subprime/

And in the case of RBS with a £97bn commercial loan book around 75% of loans were INVESTMENT commercial and 25% Development commercial.

I suspect in ireland it is 66% - 33% more like .

Discussion also on irisheconomy:
irisheconomy.ie/index.php/20 … ue-ratios/

viewtopic.php?p=292051#p292051

bungaloid or anyone,

When you calculate the value of a loan or set of loans, say in a bond/cdo whatever, does the LTV of the asset underpinning the loan influence the price? Or does it just affect the perceived quality? (which itself influences the price, I suppose)…

So would a loan for 100 mn on a building at an LTV of 50% be worth more than the same one on a building at 90%?

Missed this one from Mr. Lyons earlier:
ronanlyons.com/2009/07/31/no … -i-retire/

A good piece with an actual method for valuing the asset underlying the loans. If I understand Mr. Lyons’ logic, performance of loan is determined by rental yield (or equivalent in case of sale prices)
For loan portfolio to perform, on average, well = 6% yield

6% yield = 65-74% haircut on peak price = 48%-55.5% haircut on loan purchase.

(Apologies if I have it wrong. Please check carefully, innumerate person talking…).