European Market Update: Increased CLO Market Activity; Confidence in the UK Hotel Sector

Andrea TortoraThe European corporate CLO market has recently shown signs of further success with activity related to both resets and refinancings. The European commercial real estate market also saw further confidence in the lodging sector with the acquisition of a portfolio of 12 hotels in the UK.

Increased Activity in the CLO Market

Tikehau Capital has reportedly priced the reset of its 2016 vintage European CLO, Tikehau CLO II. The AAA tranche was placed at 99 basis points over Euribor, below the 101 basis points average for September and October resets. On the other hand, the mezzanine tranches priced around 30-40 basis points wider than September and October averages, which are composed of less seasoned deals which closed originally in 2020.

Additional equity for an amount of €9.85 million has been added to the capital structure, albeit reportedly at a significantly low price (50 cents).

The deal was already out of the reinvestment period since last December. As a result of the reset, there is a new reinvestment period of fewer than 5 years and a 1.5-year non-call period. Learn more about the European CLO market here.

On top of this reset, last week, the CLO team noted the reported partial refi for Anchorage Capital Europe CLO 1, which originally closed in 2018. The manager has refinanced the two AAA tranches and the BBB tranche, resulting in an overall amount of €254 million.

The deal ends its reinvestment period in July 2022, therefore the spreads on the notes reflect the relatively shorter-term risk exposure within a term structure of spreads in which we have seen an upward sloping. The AAA floating rate notes are priced at 78bps, while the fixed-rate tranche is priced at 100bps.

The Rumors are True; Confidence in the UK Hotel Sector

Henderson Park, a pan-European private equity property manager based in London, has acquired a portfolio of 12 Hilton hotels in the UK. The hotels, which comprise more than 2,400 rooms altogether, include properties in London, Edinburgh, Dublin, Bristol, and Coventry. The hotels are full-service Hilton branded hotels with a wide range of amenities and leisure clubs.

According to the Financial Times, the portfolio was valued at £555 million and the buyer received funding from Apollo Global Management. The hotels represent just above 20% of Henderson Park’s overall portfolio.

The company plans to invest £40 million in expanding and revitalizing the hotels in this transaction.

Overall, this is a sign of optimism in an industry that has been severely impacted by the pandemic. Last month, Trepp wrote an extensive piece discussing the impact the hotel market has seen in the UK, specifically noting the performance of loans in UK CMBS transactions backed by hotel portfolios. With respect to UK CMBS transactions, Trepp data shows that as of September 9, 2021, the volume of outstanding loans currently with a special servicer is £606.7 million. Notably, 57% of the total is represented by loans secured by hotels and is related to a unique transaction, Helios (Eloc 37), launched in December 2019. In the piece, Trepp found that updated valuations of these hotels completed to date indicated a correction in the 12%-16% range for the market value of those hotel portfolios. The evolution of the coronavirus pandemic and the related restrictions over the next few months and years will be key to shaping the future of these transactions, and the asset class more in general.

However, Trepp also noted rumors of opportunistic investors targeting the UK hospitality sector in search of good opportunities. The acquisition of these 12 Hilton hotels in the UK is just that — a positive sign for an industry that has seen the most turmoil throughout the past eighteen months.

European Investments by Sector

Savills recently published the report "Spotlight: European Investment" discussing the current state of the European commercial real estate market.

Their findings suggest offices remain the largest sector in terms of investment turnover over the first three quarters, but the divide has reduced compared to logistics and living sectors, which currently benefit from demographic and technological trends. Trepp recently published a detailed report that examined the rent rolls of office properties backing CMBS loans that are set to mature within the next three years in the US. While the trends Trepp noted in this report are US-focused, they are certainly important to note during this time of uncertainty, and it will be worth monitoring how these trends may or may not be reflected in the EU market in the comings months.  Access the full report here.

Savills reported noted that in Europe, in an otherwise battered retail sector, there is a sub-segment that is in high demand: food-anchored assets/supermarkets and strong performing retail parks/warehouses. Trepp has previously highlighted the success of these assets.

Prime CBD office capital values continue to rise faster than their respective rental values in most capital cities, the main driver likely being the availability of capital targeting a limited product that meets investor criteria in terms of specifications and ESG credentials. ESG continues to be a topic of conversation in the global commercial real estate market, with growing importance being placed on the environmental, social, and governance repercussions of a given building or investment.

On a recent Trepp and EDW webinar, CREFC Europe CEO, Peter Cosmetatos, reviewed some of the ways he has seen this evolve already, in the UK specifically, and how this will continue. He described ESG in CRE as a four-way pincer movement, with several layers to each piece of the ESG puzzle. The key pieces include the physical commercial structure compliance, regulatory updates, demands from investors on ESG reporting and information, and regulators' responses.

CMBS Surveillance: Recent European Special Notices

  • 12/ct/2021
    Special Notice: Separate meetings of the holders of the Class A Bonds and the holders of the Class B Bonds and, together with the Class A Bondholders, each convened by the Issuer, will be held via teleconference on 3/Nov/2021 for the purpose of considering and, if thought fit, passing proposed as an Extraordinary Resolution; details provided in the notice.
  • 12/Oct/2021

    Special Notice: Issuer announces invitations (Consent Solicitation) to eligible holders of its outstanding Bonds to consent to the modification of the terms and conditions of the Bonds and consequential or related amendments to the transaction documents relating to the Bonds; details provided in the notice. 

  • 12/Oct/2021
    Deal Name: WINDM XIV-A Loan Name: Fortezza II

    Special Notice: Term sheet has been agreed with the Italian Borrower and certain unitholders in the Italian Borrower, for the consensual restructuring of the loan; proposed Restructuring will be subject to the delivery of certain conditions such as Execution of a Standstill Agreement; Execution of an inter-creditor agreement between Windermere XIV CMBS Limited, Windermere X CMBS Limited, and the Italian Borrower, which shall regulate the respective interests and claims of the Windermere XIV and Windermere X securitizations vis-à-vis the Italian Borrower; Execution of an advisory agreement between AREC and the Italian Borrower in respect of the advisory services to be provided by AREC; Delivery of an appraisal of the Fortezza II Properties; Approval of the business plan by the Delegate Italian SS; Consent from the Controlling Class Representative; and Consent of the Most Senior Class of Regular Notes. Additional details are provided in the notice.

  • 11/Oct/2021
    Deal Name: EURO 32 Loan Name: Legion Loan

    Special Notice: Borrower prepaid in full the Legion Loan on 1/Oct/2021 in accordance with the terms of the Legion Facility Agreement. The amount of the prepayment will be applied against the Notes at the Nov/2021 Note Payment Date.

  • 11/Oct/2021
    Deal Name: TITN 2006-5A

    Special Notice: On 29/Sep/2021 Regional Court of Berlin awarded the Remainder of the Property to the Rejected Bidder, Kölnstraße 89 GmbH & Co. KG; accepted bid of the Rejected Bidder was €225m. The Rejected Bidder has to pay €225m to the Local Court of Berlin once the Local Court of Berlin has set a distribution date; SS considering next steps and assessing legal options.

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Disclaimer: The information provided is based on information generally available to the public from sources believed to be reliable. 


European Market Update: Increased CLO Market Activity; Confidence in the UK Hotel Sector