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Private Equity Firm Oaktree Retail Loan In Default

The Vancouver Centre in King's Lynn is one where a borrower chose not to put in equity to cure an LTV breach.

Oaktree Capital has become the latest investor to see a loan secured against UK retail assets breach debt covenants after just a year.

The loan secured against a trio of shopping centres has breached its loan-to-value covenants, according to a notice from debt servicer CBRE.

The Kingsgate Shopping Centre in Dunfermline, the Vancouver Centre in King’s Lynn and The Rushes in Loughborough were valued at £105M when Goldman Sachs loaned Oaktree £70M of senior debt in December 2017 to refinance the assets. The loan was then securitised.

But CBRE said the value has fallen by £19M to £86M, an 18% drop. That means the loan-to-value ratio on the senior debt is 78%, against a covenant of 75%. There is also £16M of mezzanine debt against the portfolio, meaning the assets are worth the same as the loans.

CBRE said Oaktree had not cured the breach, and it was waiting to hear from mezzanine lender DRC whether it wanted to cure the breach.

The centres were all part of the Harrogate loan portfolio bought by Oaktree from Lloyds Banking Group for around £260M in August 2012. At that point they were reported to have been valued at around £100M.

The portfolio is 93% occupied, with 131 tenants and an average lease length of five years, paying a total of £9.5M of rent a year.

Oaktree tried to sell the three centres as a portfolio in March 2017, appointing agents to market them for £120M, an 8% yield. Today that yield has risen to closer to 12%.

Deutsche Bank refinanced the portfolio in 2013, providing debt against the assets at a valuation of £120M.

The default is one of several that have emerged in recent months in the retail world. Fellow private equity firm Lone Star ceded control of a portfolio of shopping centres that it bought for £260M in 2014. Listed firms RDI REIT and New Frontier Properties have breached LTV covenants on portfolios of regional shopping centres. And a centre in Maidenhead owned by Cheyne Capital was put into receivership last year.