European CMBS 2.0 Committee
Chairman: Nassar Hussain, Managing Partner, Brookland Partners LLP
In May 2011, CREFC Europe established a committee to issue Market Principles for Issuing European CMBS 2.0. The background for the committee is as follows:
European CMBS 2.0 Committee Working Groups
Pre-Issuance Disclosure Working Group
To form Principles for pre-issuance disclosure in offering memoranda including conflicts of interest, rights of Junior lenders and access to underlying documentation (both pre and post issuance) and, related to this, standardised and updated version of representations and warranties (principal/agented deals).
Excess Spread Structure Working Group
Excess Spread / Profit Extraction Structure for Originating / Arranging Bank (e.g. Class X, retained interest, deferred interest, skim both at bond and loan level etc) – ranking, impact of restructurings, triggers to switch off based on expected rather than crystallised losses, appraisal reduction type structure on default.
Improved Investor Reporting Working Group
To verify ways to improve and standardise investor reporting and enhanced loan and property surveillance and ensuring both lenders and borrowers are incentivised to build this into the underlying loan documentation (regulatory and other requirements). This group will liaise with the CREFC Europe E-IRP and Lender Committee on respective principles and standards.
Transaction Structure Features/Issues Working Group
Key Focus Areas:
- Standardisation of Control Party (& Operating Adviser) and Junior lender rights with effective appraisal reduction
- Standardisation of Noteholder Voting Rights
- Preferred Hedging Structures (risk of long dated structures, Issuer/Loan level)
- Optimising Transactions Structures for less Creditor Friendly Jurisdictions (off-shore companies with share pledge, off-shore reserve accounts)
- Liquidity Facilities - Availability, improved and standardised appraisal reduction mechanism, alternative forms of liquidity
- Asset and Property Management – Improved ability to terminate; performance assessment; independence from sponsors
- Synthetic Securitisations – Are they fundamentally flawed? Servicing; Restructuring Credit Events
- Valuation Standards, Standardised Instruction Letters and Reliance/Addressee Issues
- Loan Documentation in conjunction with CREFC Europe Lender Committee
Servicing & Transaction Counterparty Roles Working Group
The role and fees of the Primary Servicer/Special Servicer, standardisation of the Servicing Standard (NPV, loan level/note level, who else is covered?, synthetic deals etc.), standardisation of the level of Servicer discretion (increased discretion, improved indemnities, accountability) (How can these be improved/enhanced?).
Investor Identification Working Group
To verify an investor identification / register of investors’ process which will be available to official transaction counterparties. In addition, will verify if there is a need for a new potential role of a Noteholder representative.