Last week's new Debussy DTC/Toys'R'Us CMBS transaction , which we were happily involved in, has sparked media attention as a sign of recovery of investors' faith in the European securitisation markets. It also demonstrated investor demands to address some of the structural issues that had arisen in the original Vanwall securitisation as well as other legacy CMBS transactions.
This new CMBS incorporates many of the features based on a set of guidelines drawn up by banks and funds to govern new European CMBS transactions (although it should be noted these are separate from the guidelines drafted by Commercial Real Estate Finance Council's CMBS 2.0.
One of the most obvious features from a structuring perspective is the enhanced role of the servicer which, amongst other things, has taken over various responsibilities that would previously have been the responsibilities of a securitisation issuer such monitoring the performance of the transaction parties and exercising the rights of the issuer in respect of any remedies. While this allows a party with commercial expertise to monitor the transaction (and replace the issuer's agents were necessary), it also means that the servicer's role is no longer confined to dealing with the loan level documents and parties. As a consequence, the noteholders in the transaction have also acquired direct rights against the servicer.
The requirement to receive rating agency confirmations has also been removed. This is to be welcomed, particularly in light of Fitch's reluctance to provide confirmations in cases where an operating advisor/controlling class want to replace a special servicer (see our previous blog (as demonstrated by the recently resolved replacement of Hatfield Philips on the Sisu loan in Windermere XIV transaction notice)).
As much as an enhanced servicer role can solve some of the issues that have recently dogged CMBS transactions, it is important to remember that the role of the servicer has its limits. At the end of the day, the servicer is an agent of the issuer and has a different mind-set to that of a trustee, who is a representative of the noteholders and has fiduciary duties towards them. Hence that stated aim of the guidelines to remove trustee discretion "as far as possible" may not be practical in all circumstances. In Toys, for example, while the note trustee is under a duty to implement modifications and consents if directed to do so by the Servicer such requests are likely to relate to consequential amendments to the main securitisation level documents following amendments/consents granted at the loan level. The note trustee retains broad discretion to consider all other amendments and consents in the usual way.
With few CMBS transactions currently in the market, it remains to be seen if the solutions adopted in this CMBS will be adopted as the standard going forward. Watch this space.
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