Industrious portfolio sale risks CMBS havoc

LONDON (Reuters) - A proposed 270 million pound sale of the Industrious property portfolio threatens to inflict the first-ever losses on the most senior notes of any European commercial mortgage-backed security (CMBS), a Barclays Capital expert said.

Hans Vrensen, head of securitisation research at the bank, said holders of the Industrious Class A bonds could lose between 10 percent and 20 percent of their principal if the portfolio's administrators at Ernst & Young agree to a sale at that level.

Vrensen's comments follow reports that just-listed opportunity investor Max Property (MAXP.L) was close to buying the portfolio at a price of between 250 million to 270 million pounds.

A Max Property spokesman declined to comment on the sale.

"If the sale goes through as reported, this deal could bring a number of firsts to the European CMBS market," Vrensen said.

"With 300 million pounds outstanding on the Class A bonds, this would be the first time that a most senior class of bonds will suffer a loss," he said, while pointing out the continued high-level of uncertainty surrounding the possible sale.

Average commercial property values have plunged close to 45 percent since June 2007, putting billions of euros of mortgage-backed bonds issued between 2005 and 2007 at risk.

Furthermore, Vrensen said the sale could also trigger the first ever 100 percent losses in all junior classes of notes (B to F) in a European CMBS deal.

The Industrious portfolio consists of about 130 industrial and warehouse properties that act as security for the bonds in the Epic Industrious CMBS deal.