Rating agency moves to ‘negative’ on £1 bn of UK CMBS

DBRS Morningstar has switched the trend from stable to negative for three UK hotel CMBS transactions secured by debt payments on portfolios owned by the Dayan family, London & Regional and Thai investor DTGO.

Morgan Stanley’s £350 mln Helios (European Loan Conduit no 37) was issued last December to refinance a portfolio of 49 ‘limited service’ Holiday Inn Express hotels across the UK with almost 6,000 rooms. London & Regional bought the portfolio in 2016 from Lone Star and acquired the private equity firm’s Atlas Hotel Group at the same time, for a total £575 mln.

At issuance, the LTV was 64% based on a May 2019 valuation. With a debt service coverage ratio (DSCR) of 2.0x, DBRS estimates debt service would be maintained if occupancy across the portfolio remained above 50%.

The Magenta 2020 transaction only closed a few weeks ago just before the UK government instigated the coronavirus crisis lockdown. The £271 mln loan advanced by Goldman Sachs is secured on a portfolio of 17 hotels managed and operated by Valor Europe on behalf of DTGO Corporation under various franchise agreements with InterContinental Hotels, Hilton and Marriott.

Thai investor DTGO bought the portfolio from Marathon Asset Management in December. Goldman also  made a £65.3 mln mezzanine loan for the £460 mln acquisition.

The LTV is 62.2% based on the current senior loan balance of £271 mln. The debt yield and DSCR at issuance were 11.8% and 3.0x respectively which DBRS noted provides some coverage to withstand any short-term pressure on revenues.

However, the rating agency also notes that Magenta ‘could fall under significant refinancing pressure’ in a prolonged lockdown because of the initial loan maturity in less than two years’ time, December 2021.

Options to extend by exercising three one-year extensions depend on meeting covenants.

The third and largest deal is Ribbon Finance 2018, the securitisation of a £450 mln Goldman Sachs loan which was used to buy 20 hotels with 4,840 rooms, mainly operated as Holiday Inns plus three under the Crowne Plaza brand. The Dayan family restructured the portfolio into a propco/opco structure with Lapithus Hotels as the manager.

There was also a £69 mln mezzanine loan in place which Goldman had sold to Apollo Global Management.

In January the outstanding principal loan balance was reduced to £388 mln and the LTV on the senior debt to 63%.1%, in large part due to the sale of the Bloomsbury Hotel which yielded £49.75 mln as well as amortisation.

The borrower has already certified to the CMBS servicer that the Ribbon CMBS will be in compliance with all of its covenants, ahead of the date next week of the next covenant test. All rent due for the March quarter to June 2020 has been paid.

The sponsor is identifying cost saving and revenue generating opportunities where these arise to enhance the portfolio in the short term and so that the hotels can restart trading quickly as soon as the government allows them to reopen to the public.


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