Barclays, Maud Bondholders Square Off on $1.2 Billion Loan

By Chris Bourke

Feb. 24 (Bloomberg) -- U.K. property investor Glenn Maud’s creditors are seeking to oust Barclays Plc as manager of an 850 million pound ($1.2 billion) loan that’s been in breach of its terms since July.

Bondholders will vote tomorrow to replace Barclays with broker CB Richard Ellis Group Inc. Barclays is proposing a restructuring to halt further breaches because Maud’s Propinvest Holdings Ltd, “is not in a position to provide further equity support” for the loan, the bank said in a statement on Feb. 20.

“We thought it right to choose for the future, the best possible servicer,” said Paul Rivlin, co-founder of Palatium Asset Management, the bondholder leading the process to remove Barclays. Palatium is in the “controlling class” of junior creditors according to the bond agreement, giving it the right to terminate Barclays’ contract if 75 percent of that group agrees.

Creditors are growing impatient after U.K. commercial property values fell 37 percent from their peak, wiping equity stakes and pushing loans into, or close to, default. During the five-year real estate boom, loans used to buy shops, offices and warehouses were packaged into more than 70 billion pounds of commercial mortgage backed securities. Junior bondholders are at risk of receiving nothing if a loan defaults.

Bondholders are trying to protect their interests as Barclays is seeking to retain the 2.1 million pounds in fees a year that it receives as the loan servicer.

‘More’ Challenges

The contest is the latest challenge for Maud, a property investor who has made his name in the U.K. with a series of 1 billion-plus deals in the past decade, including the purchase of Citigroup Inc.’s tower in Canary Wharf.

“We may well see more of this,” said Jeffrey Rubinoff, a partner in law firm Freshfields Bruckhaus Deringer’s real estate team. “It’s symptomatic of junior lenders, who have the most to lose from a sale, trying to get someone in control of the process who is more receptive to their way of thinking.”

Maud’s loan, secured against 35 commercial properties, first breached banking terms in July. Propinvest told Barclays that month it intended to refinance and prepay the loan. On Nov. 25, Barclays said that the loan wasn’t refinanced and told investors it would know more within 15 days.

‘Independent Entity’

Barclays Capital Mortgage Servicing Ltd has sought to distance itself from the bank’s investment banking unit. Barclays Capital issued a statement on Jan. 28, saying it was separate from the banking arm which issued the loan. That unit “operates as an independent entity to ensure that any potential conflicts of interest are robustly managed,” said the statement.

Barclays Capital receives a quarter of a percent of the loan’s balance in an annual fee, according to the loan’s prospectus. That amounts to 2.1 million pounds a year, according to Bloomberg calculations.

A spokesman for Propinvest, who did not want to be identified, declined to comment. Will Bowen, a spokesman for Barclays Capital, also declined to comment.

The original loan was made in August 2006 to refinance some of Maud’s existing debt facilities, according to a Standard & Poor’s statement in October of that year. Since then, the loan- to-value ratio has risen to at least 120 percent, which exceeds the 90 percent limit in the Barclays agreement, Moody’s said in a statement on Oct. 24.

Falling Values

The properties backing the loan were valued at 1.2 billion pounds in July 2007, according to a quarterly report from Barclays Capital. The last reported valuation was 801 million pounds on Sept. 26, according to a Regulatory News Service statement, which was 6 percent less than the loan’s value.

Maud, 50, was estimated to own stakes in properties worth at least 2 billion pounds by last year’s Sunday Times rich list. The ex-lawyer bought most of those assets in this decade, establishing himself as a key player in the U.K. property scene.

Maud captured attention in July 2007 when he bought Citigroup’s headquarters in Canary Wharf for 1 billion pounds in the country’s second-largest single property deal. His partner was Irish real estate investor Derek Quinlan. Maud also completed the largest single-property European acquisition in September of last year, paying 1.9 billion euros for the Banco Santander SA headquarters in Madrid, again with Quinlan.

To contact the reporter on this story: Chris Bourke in London at cbourke4@bloomberg.net.