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Clifden’s Fairhold CMBS saga
heads to court
Structured Finance Mysterious Irish Stock Exchange RNS announcement was quickly withdrawnBY CHRIS MOOREActivist investor CLIFDEN has
been forced to defend its
aggressive attempt to take over
DEFAULTEDû5+û#-"3ûFAIRHOLD
SECURITISATION in the High Court
of England and Wales after the
issuer successfully applied for a
high court injunction freezing
the raid.
This came after the Irish
Stock Exchange removed an
unauthorised regulatory
announcement that said
administrators had agreed to
sell the assets to Clifden.
Fairhold was a £329m deal
created in 2006 backed by
sheltered housing ground rents
collected by a management
company owned by Vincent
Tchenguiz.
Clifden, run by former
securitisation banker Rizwan
Hussain, announced a tender
offer for Fairhold bonds in
February.
It wanted control of at least
25% of the Class A notes, which
would allow it to issue
directions to the deal’s trustee
and potentially take over the
#-"3
Despite failing to get past
25%, on July 12 Clifden applied
to the High Court to appoint
administrators to the
SECURITISATIONû306ûANDûTHENû
announced to the market that
the administrators had been
appointed and had agreed to sell
the Fairhold assets to a Clifden
vehicle.
It is not clear from court
documents if the appointments
were formally made, and the
issuer, trustee and even two
ADMINISTRATORSûTHEMSELVESûmATLYû
denied the appointments were
valid and have successfully
applied for a injunction freezing
the whole process.The follow-up court hearing is
scheduled for August 8–10 and
will revolve around whether
Clifden validly appointed
administrators and whether a
subsequent agreement to sell
THEû#-"3SûASSETSûTOû#LIFDENûWASû
valid.
“I think [Hussain] faces an
uphill struggle, I don’t see what
basis he has,” said a
securitisation lawyer.
The deal’s offering circular
says a noteholder is not entitled
to enforce or take action against
the issuer unless the trustee fails
to act when bound to do so. And
the trustee is only bound to act
after being directed to by at least
25% of the Class A noteholders.
A source close to Clifden,
however, noted a section of the
5+Sû"ANKRUPTCYû#ODEûTHATûSAYSû
anyone dealing with the
administrator of a company “in
good faith and for value need
not inquire whether the
administrator is acting within
his powers”.
The source said Clifden has
submitted around 1,000 pages
of documents in support of its
actions and expected the judge
to look at whether the
appointment process was valid,
whether the two administrators
consented and whether the
asset sale was the right thing for
THEû#-"3UNNERVING
Clifden’s conduct in 2018 has
infuriated and unnerved many
in a market that is far happier
ANALYSINGûCASHmOWSûTHANû
mounting defences against raids
from hedge funds.
Its initial tender offer for
Fairhold came weeks after
trying a similar tactic on pre-
CRISISû5+û2-"3ûDEALSûISSUEDû
under the RMAC name and now
RUNûBYû&ORTRESS
OWNEDû0ARATUSClifden had already upset
some investors when in late
2017 it offered to sell them a
portfolio of mortgages that later
turned out to be still securitised
in those RMAC deals and that
Clifden did not own.
Its tender documents offered
attractive prices for the RMAC
bonds but investors who
participated found their bonds
tied up and locked from trading,
while Clifden repeatedly
extended the tender offer
DEADLINEûTOûBUILDûAûSUFlCIENTû
stake that would give it control.
Clifden’s subsequent notices
implied it was entitled to act,
and vote, on behalf of
noteholders who had tendered
and whose bonds were locked,
even if Clifden didn’t complete
the tender and hadn’t actually
bought the bonds from
investors.
“That upset Fortress investors
and insulted the intelligence of
THEûMARKET ûANDûITSûBACKlREDû
spectacularly,” said one real
estate adviser, with investors
now more wary about
participating in Clifden tenders.
Market participants say
Clifden did have a chance of
taking control over the RMAC
DEALSûANDûNETTINGûAûaMûPROlT û
BUTûINûTHEûENDû0ARATUSûHADû
enough time to call those deals
ANDûRElNANCEûTHEMûWITHûAûNEWû
issue.
Fairhold is a far more
complex deal than any in the
RMAC series. The underlying
assets themselves are
performing, but costly interest-
RATEûANDûINmATIONûSWAPSûPUSHEDû
the deal into default in 2015,
when the so-called Ad Hoc
Group of investors was formed
and a new trustee, GLAS, was
appointed.
“There is a lot of risk built
into this transaction, whichmight make people decide they
want to be out of it now,” said
the securitisation lawyer.
A number of attempted
restructurings have so far come
to nothing and there are
concerns the government
planned leasehold reform could
also jeopardise recoveries.
“Fairhold must rank as the
world’s most shopped deal,”
said the real estate adviser. “It’s
been hanging around for so
many years.”ISSUER DENIAL
Ever since Clifden announced
its tender offer, the issuer and
the Ad Hoc Group have publicly
challenged Clifden across a
series of Irish Stock Exchange
RNS announcements authored
by the issuer.
"UTûTHEû*ULYûû
announcement that an
administrator had been
appointed and would sell to
Clifden was not written by the
issuer. It took an identical form
to previous issuer RNS
announcements except that the
words “in administration” were
added, in brackets, to the issuer
name.
Five hours after it was
published its contents were
mATLYûDENIEDûVIAûAûNOTICEûFROMû
the issuer.
A spokesman for Euronext
Dublin, which owns the Irish
3TOCKû%XCHANGE ûSAIDûTHEûlRSTû
announcement was
unauthorised and had been
removed.
A validly appointed
administrator would be entitled
to issue deal notices, but it is not
clear if Euronext would
routinely check whether an
insolvency proceeding was
legitimate before accepting
notices under such
circumstances.