We asked SitusAMC’s European team to discuss trends in loan asset management during the crisis in 2020 and thoughts on changes in 2021. We spoke with Lisa Williams, Head of Europe at SitusAMC as well as Olga Delval and Paul Harrington, Directors of Loan Asset Management.
Several forecasts predicted loan delinquencies and defaults because of COVID-19 and possibly discounted asset sales. What have you seen?
Delval: Many loans have been restructured in one way or another with extension of maturities and waivers of covenants, in which lenders got something in return. We saw very few real defaults – generally large sponsors and lenders agreed on next steps. There have been some cases in which sponsors handed over the keys to lenders, but these were very limited and mainly within retail and leisure sectors. We are seeing reevaluations with sponsors making lump-sum paydowns. So far, sponsors have been willing to provide more equity to correct positions and pay debt service. Very few are deferring amortisation or interest. With hotels and retail, lenders have given waivers for a big part of 2021 and many expect new equity for interest reserves and to pay down debt.
Why do you think there were so few defaults?
Delval: There tend to be high-quality sponsors behind a lot of loans we manage. They have injected equity in the deals, continue to pay interest and are confident that once we rebound from COVID-19 those assets will start generating income again. Unlike last recession, both sponsors and lenders have a grasp on when this market disruption is likely to end. There has been a lot of government support as well, which allowing many tenants to continue paying rent. Lenders want to keep these relationships and do future business with the sponsors.
How did the SitusAMC team assist clients during the early days of the lockdown?
Harrington: When the first lockdown occurred in Spring of 2020, all loan asset management teams were working full time to supply information to our clients on different aspects of their portfolios, such as asset performance, concentrations, and trends. It allowed our clients to quickly understand and react any potential risk. Also, as the lockdown continued, the loan asset management teams were busy analysing and assisting with borrowers’ requests for waivers, as well as being a part of portfolio status calls with the client. The value-add of having a dedicated SitusAMC loan asset management team supporting the client resulted in better efficiency in dealing with borrower requests and a quicker realisation and addressing of any risks in the loan portfolio.
What about current new lending activity?
Williams: There has a been an increase in lending activity since late last year when the vaccine was announced, and the trend continues. Lenders are working to do new transactions and the pipeline is very strong. Debt funds are particularly active because they have the flexibility to go into any part of the capital stack, as well as get approvals and transact quickly.
The new loans are secured by properties across the asset classes, including hotels. The number of hotel transactions is growing with the expectation that in six to 12 months the business will recover. There are several five-star hotels under construction, and optimism that travelers from America, Asia and the Middle East will want to experience these new luxury hotels in London.
From an operational perspective, what does the post-COVID-19 landscape look like in Europe for investment banks and debt funds?
Williams: Banks and debt funds have typically maintained lean underwriting and asset management teams. With the impacts of COVID-19 generating more focus on the asset management of the existing loan book, in addition to trying to generate new loan transactions, some teams are now considering outsourcing some or a large amount of the loan asset management. Getting the assistance on loan asset management allows the team to focus on new originations. With the pressures of COVID-19, our clients were pleased to have the assistance of SitusAMC loan asset management on their portfolios.
Our team has a wide range of experience, professional qualifications, and the language skills, as well as exposure to many different types of loans and collateral. This allows us to provide an experienced team managing the portfolio with the proper amount of oversight. Loan asset management is a bespoke service, as all clients have different systems, requirement and want different levels of surveillance and management. Our model works well for all types of lenders including funds, and lenders offering warehouse lines and development loans. Our loan asset management book has a current AUM of c. €20B with collateral in 16 countries.
Need more information about loan asset servicing and surveillance? Contact SitusAMC’s European team at ChipGood@SitusAMC.com.