London, 18. January 2020 (pta001/18.01.2020/19:00) - ,
We refer to the following Securities being traded at the Frankfurt Stock Exchange (open market): the Series 2018-GLB 1 EUR 5,840,000 profit participating certificates 17/04/2022 (ISIN XS1856028342) ("Series 1"), Series 2018-GLB 2 EUR 10,685,000 profit participating certificates due 17/04/2022 (ISIN XS1856028425) ("Series 2") and Series 2018-GLB 3 USD 21,575,000 profit participating certificates due 13/09/2021 (ISIN XS1921996382) ("Series 3") (together, the "Notes"), issued by German Listed Bonds Plc (the "Issuer").
The Issuer has provided the following Q&A to provide further information in relation to the events of default:
The Issuer will continue to provide regular updates.
For any questions please contact:
Name: Carl Mauritzon
Position with Issuer: Director
Issuer: German Listed Bonds Plc, Brompton Place, 161 Brompton Road, London, SW3 1QP
XS1856028342; XS1856028425; XS1921996382)
Exchanges: Frankfurt (open market); Zurich (not listed), Cayman Island Stock Exchange
German Listed Bonds - Response to Trustee Queries
1. Please provide information on the current borrowers of German Listed Bonds plc (the "Issuer") and relevant loans advanced as well as details of relevant security assets. )
The proceeds from each of the series 1, 2 and 3 were invested in two borrowers, which are two separate SPVs (Ampere Projektentwicklunsgesellschaft mbH ("Ampere") and Dolphin Capital 152. Projekt GmbH & Co. KG ("Dolphin")), together the "Borrowers"). Both Ampere and Dolphin are controlled by the German Property Group GmbH ("GPG"), a German company that specialises in the redevelopment of listed buildings in the German real estate market. Each Borrower holds a separate asset, with Ampere holding the property located at Birkbuschstrae 40 - 42, 12167 Berlin - Steglitz (land registry (Grundbuch) of Lankwitz at the local court (Amtsgericht) of Schöneberg, folio no. 12038, land parcel 10911) (the "Berlin Asset") and Dolphin holding the property located at Bülowstrasse 17-19, 10783 Berlin (land registry (Grundbuch) of Jüterbog at the local court (Amtsgericht) of Luckenwalde, folio no. 5434, land parcel 363) (the "Jüterbog Asset").
As of January 2020, the amounts loaned by the Issuer to the Borrowers is as follows:
|GLB Series 1||Eur 3,700,000||Eur 1,450,000||Eur 5,150,000|
|GLB Series 2||Eur 6,000,000||Eur 1,800,000||Eur 7,800,000|
|BLB Series 3||Eur 11,800,000||Eur 6,150,000||Eur 17,950,000|
|Total||Eur 21,500,000||Eur 9,400,000||Eur 30,900,000|
The total amount loaned to Ampere is EUR 21.5 million with the loan agreements dated 28 January 2019 requiring Ampere to grant first ranking security to the Issuer over the Berlin Asset.
Relevant security documents had failed to be duly filed and registered by the German notary appointed by Ampere and the Issuer's previous German counsel at the time the loans were advanced. The Issuer became aware of this failure at the end of November 2019. Following various steps taken by the Issuer with its professional advisors (as set out in more detail below), relevant security documents were registered with the German land registry on 15 January 2020 as fourth ranking security over the Berlin Asset with such security value amounting in aggregate to EUR 29.3m. Thus the registration has now occurred, although there is still outstanding breach in relation to the priority of that security and the Issuer is working with its professional advisors on the options to resolve this. Please see section 2 below for further information on the priority ranking of this security.
The total amount loaned to Dolphin is EUR 9.4 million with the loan agreements requiring Dolphin to grant first ranking security to the Issuer over the Jüterbog Asset. Relevant security documents have been registered with the German land registry and the Issuer has received confirmation following investigations at the German land registry that it holds a first ranking security over this property with such security value amounting in aggregate to EUR 15.5m. There is no security default in relation to this asset.
2. It is noted that question 2 of the Q&A refers to "default events that have arisen in relation to...facility agreements between the issuer and two German borrowers". Can the Issuer please provide more information on the events of default?
The Issuer currently has first ranking security over the Jüterbog Asset. There is no security default in relation to Dolphin and the Jüterbog Asset.
It was flagged to the Issuer at the end of November 2019 that it does not have registered security over the Berlin Asset. In advancing the loan, the Issuer has relied on the letter dated 30 January 2019 from its German counsel appointed at the time which confirmed that "the first charge security has been transferred into the name of GLB" and that the conditions precedent have been satisfied and that the Issuer can therefore advance the loan. The loan agreements also contained a number of representations, warranties and covenants that the Issuer relied upon, including a representation that Ampere had "good and marketable title to the relevant property" and a covenant by the Borrower to grant a first ranking security to the Issuer.
Investigations by the Issuer and their new German counsel in November 2019 and December 2019 revealed that the security documents relating to the Berlin Asset had failed to be duly filed and registered by the German notary appointed by Ampere. This failure constituted an event of default under the underlying German law loan agreements with Ampere.
Further, at the time of making the loans, Ampere and the German notary failed to disclose to the Issuer that there were pre-existing charges in respect of the Berlin Assets.
The Issuer has been working with its professional advisors to rectify the above event of default and relevant security documents were registered with the German land registry on 15 January 2020 as fourth ranking security. The Issuer is waiting for the German land registry to issue the land charge certificates that evidence the charge and confirm that the Issuer is a registered secured creditor pursuant to German law. This process is automatic and takes approximately around two to four weeks. Thus the registration has now occurred, although there is still an outstanding breach in relation to the priority of that security and the Issuer is working with its professional advisors on the options to resolve this.
Based on the up-to-date extract from the land registry dated 16 January 2020, there are currently the following land charges registered against the Berlin Asset (Briefgrundschulden):
- first ranking land charge amounting to EUR 8.7m which we understand from Ampere is in favour of Korean investor;
- second ranking land charge amounting to EUR 10m which we understand from Ampere is in favour of a French investor;
- third ranking land charge amounting to EUR 14.3m which we understand from Ampere is in favour of the above Korean investor (the first ranking, second ranking and third ranking land charges, collectively the "Prior Ranking Land Charges"); and
- fourth ranking land charges amounting to EUR 25.3m and EUR4m in favour of the Issuer.
Once in possession of the land charge certificates, the Issuer is entitled to various actions as a registered secured creditor, including enforcing the land charges and initiating a sale (Zwangsversteigerung) of the Berlin Asset. However, as the Issuer's land charges are fourth ranking, a commercial valuation would need to be carried out to ensure that any achieved sale price covers the outstanding loan in full (and all prior ranking land charges). The Issuer will be looking with its professional advisors at current valuation of the asset as well as at the expected valuation of the asset which is normally expected to be higher once the development is completed.
Interest Payment Defaults
Ampere and Dolphin have failed to make Q4 2019 interest payments, resulting in payment event of defaults under the relevant German law loan agreements. Ampere has defaulted interest payments of EUR 1,019,600. Dolphin has defaulted interest payments of EUR 396,872. This is in breach of the terms of the underlying loan agreements.
As a result, a default interest is now accruing on the loans of both Borrowers and a lump sum penalty is now also due from the Borrowers to the Issuer.
MTN Programme defaults
Interest Payment Defaults have resulted in the Issuer not having sufficient funds to meet the December 2019 coupon payment on the Series 3 notes, which has triggered an event of default under the programme documentation for the Series 3 notes.
3. Can the relevant parties confirm the current proposal to take things forwards with the borrower?
The Issuer and its relevant professional advisors have held a number of meetings and calls with the Borrower during November 2019, December 2019 and January 2020 to discuss options to rectify the situation. The Issuer sent a reservation of rights letter to Ampere on 11 December 2019 and a further letter before action on 13 December 2019 notifying Ampere that there are events of default outstanding in respect of the loans and reserving the Issuer's rights to enforce and accelerate the loans.
Further, the Issuer and its new German counsel also held a telephone conversation with the restructuring advisor CFE Ltd of the Borrower on 7 January 2020 (the "Conference Call"). The restructuring advisor is working with the Borrower on restructuring and/or refinancing options for GPG and has informed the Issuer and their German legal advisors on the Conference Call that it is aiming to produce a restructuring report summarizing restructuring options within four to five months.
During meetings with the Issuer and Servicer in November 2019 and December 2019, the Borrower offered to provide additional security to the Issuer in order to rectify the security event of default in respect of the Berlin Asset. While the Issuer and the Servicer were reviewing the proposed additional security, this proposal was retracted by CFE Ltd. during the Conference Call and they advised the Issuer that no payments would be made by the Borrower and no additional security would be granted until the restructuring review is completed in four to five months' time. CFE Ltd. noted that most other creditors have agreed to a standstill where they agree to defer their payments and any potential claims against the Borrower's group of companies during this restructuring review period. This assertion has neither been separately nor independently verified. CFE Ltd. requested on the Conference Call that the Issuer also agrees to a standstill agreement. This standstill agreement would prevent the Issuer from enforcing any claims or making any demands within an agreed time (suggested by CFE Ltd. to be approximately four to five months).
The Issuer has considered this position with its professional advisors. On 8 January 2020, after taking advice from its professional advisors, the Issuer rejected this proposal as it was considered that any delay may worsen position of the Issuer. It was decided to demand immediate rectification of the security and payment defaults from the Borrower. The Issuer has also considered acceleration and enforcement options with its professional advisors and has been advised to try and rectify the security situation before proceeding to enforcement.
As a result, on 10 January 2020, the Issuer sent separate final demand letters to Ampere and to Dolphin with a copy to the relevant directors/shareholders to demand payment of outstanding interest by Thursday 16 January 2020 and rectification of the security default by either registering a first ranking security over the Berlin Asset or providing alternative security over another asset in the form and value acceptable to the Issuer by 31 January 2020.
The Issuer has also reserved the right in the demand letters to file for the insolvency of Ampere and Dolphin. In addition, the Issuer set out in these letters that it is investigating the actions of the Borrower, its shareholders and officers as well as the original German lawyers and German notary and reserves its right to investigate these actions further and report its findings to the competent state authorities. The Issuer has also reserved its right to accelerate the full principal amount of the loans through enforcement procedures.
On 15 January 2020, security in respect of the Berlin Asset was registered as a fourth priority security. Thus the registration has now occurred, although there is still an outstanding breach in relation to the priority of that security and the Issuer is working with its professional advisors on the options to resolve this.
The Borrowers have not made an interest payment by the requested deadline of 16 January 2020. In the event that this and other outstanding breaches are not cured promptly and in any case by 31 January 2020, the Issuer shall immediately consult its advisors as well as the Servicer and the Trustee on next steps and the overall recovery strategy. As soon as the strategy is agreed between these parties, the Issuer will provide an update.
4. Does the Issuer have any rights of claim against the German notary and/or German counsel?
The investigation is on-going and although facts are still being ascertained, on a preliminary analysis, the Issuer is advised by its new German counsel that it has a case against the original German counsel engaged by the Issuer and possibly the relevant notary.
5. Is the Issuer of the view that there is a serious risk of default on the full capital amount lent under the Ampere loan over and above the defaulted coupon amount?
At this stage, it would be speculative to comment upon the risk of default on the full capital amount. The Issuer notes that, as detailed above, the Borrower has hired a restructuring consultant (CFE, Ltd.) whose role is to help restructure and refinance the wider Borrower group.
The Issuer is looking at the funds available at the reserve and other accounts and the Issuer also has recourse to its registered security.
6. The Q&A refers to attempts to obtain additional security. Please can the Issuer explain how this is realistic with a defaulted Borrower?
The Issuer has been working to both try to rectify the first ranking security default and obtain additional security. Accordingly, the Issuer and its agents have reviewed one additional asset that was provided as proposed security by Ampere and, as such, this has been requested in the demand letters. It is necessary to note that the Borrower's ability to grant such further security will be restricted by its group restructuring and any applicable German restructuring laws and is therefore subject to negotiations with the Borrower and the restructuring advisor as well as with third party creditors, which are ongoing.
7. Can the Issuer provide more information on the corporate governance of German Listed Bonds PLC?
The corporate structure of the Issuer is set out in the Listing Particulars at page 82.
The Issuer, German Listed Bonds PLC, is a public limited company incorporated in England and Wales with registered number 11272857 on 23 March 2018 under the Companies Act 2006. The registered address of the Issuer is Brompton Place, 161 Brompton Road, London, SW3 1QP, United Kingdom. The Issuer has no subsidiaries.
The structure of the Issuer was set up by the Arranger and the Issuer was incorporated as a special purpose vehicle for the purpose of issuing the Notes, under the terms of its engagement by SHB as the sponsor of the programme. Its principal activities are limited to issuing notes and advancing the proceeds thereof to borrowers selected by the Loan Originator under Borrower Loans that comply with the loan origination criteria, as set out in the underlying programme documentation and in the Listing Particulars.
Directors of the Issuer
The two directors of the Issuer are independent and appointed by the Corporate Services Provider as one of its duties under the Corporate Services Agreement. As of January 2020, the directors consist of a UK individual and a corporate director provided by Maples Fiduciary Services (UK) Limited.
Decisions by the Issuer
Borrowers are selected in accordance with the loan origination criteria (as detailed in the Listing Particulars and the programme documentation) by the Loan Originator which then (i) presents the proposed borrowers, the borrower loan(s) and the details of the asset proposed to be given as security to the directors of the Issuer, and (ii) confirms and represents to the Issuer that the borrower loans and relevant assets proposed for security comply with the loan origination criteria, including 'being capable, and are the subject of a first ranking security interest'. If the loan origination criteria are satisfied, the directors of the Issuer have to approve the relevant borrower loans. The Issuer and its directors do not carry out independent due diligence, or oversee the legal execution, of the proposed projects and rely solely on the Loan Originator to select projects that match the loan origination criteria and on its German counsel to execute, register and perfect relevant loan documentation.
The Issuer is an SPV orphan vehicle and appoints agent to make determinations on its behalf. As such, in taking decisions the directors rely on the loan origination process set out in the programme documentation and its relevant professional advisors in this process.
Subsequent to loans being made, the Loan Servicer is responsible for servicing (monitoring, collections and reporting) the loans in accordance with its duties under the Loan Servicing agreement on an ongoing basis.
Share Capital and Major Shareholders
As is a common structure in capital markets transactions, the entire issued share capital of the Issuer is held by Brompton Place Nominees Ltd, a private limited company incorporated in England and Wales with registered number 11451382 (the "Nominee"). The Nominee holds the entire issued share capital of the Issuer on trust for the Brompton Place Charitable Trust. Neither the Nominee nor Brompton Place Charitable Trust receive any dividends as shareholders of the Issuer.
8. Are there any links between the Issuer and Ampere?
Ampere and Dolphin are borrowers under German law loan agreements with the Issuer. There are no other links between either Ampere or Dolphin and the Issuer.
9. Can further detail be provided (city, location, type) in respect of the relevant properties and the borrower itself?
Registered with the commercial register (Handeslregister) of the local court (Amtsgericht) of Charlottenburg under HRB 179348 B.
Business address: Lietzenburger Straße 107, 10707 Berlin.
Address: Birkbuschstrae 40 - 42, 12167 Berlin - Steglitz.
Land registry (Grundbuch): Lankwitz at the local court (Amtsgericht) of Schöneberg, folio no. 12038, land parcel 10911, size: 13753 qm.
Registered with the commercial register (Handeslregister) of the local court (Amtsgericht) of Hannover under HRA 202678.
Business address: In den Kolkwiesen 68, 30851 Langenhagen.
Address: Bülowstrasse 17, 10783 Berlin.
Land registry (Grundbuch): Jüterbog at the local court (Amtsgericht) of Luckenwalde, folio no. 5434, land parcel 363, size 2000 qm.
10.There is a provision in the programme documentation which requires a first ranking charge to be granted in favour of the Issuer to guarantee relevant loans. Was the grant of such charge a condition precedent to advancing the loans?
Under German law, the lender and its legal counsel rely on the German notary to, particularly, confirm (i) that no prior security exists and thus the lender would automatically receive the first ranking security upon registration; and (ii) file relevant security documents with the land registry in order to register the charge.
In this case, based on the Issuer's current understanding of the situation, the Borrower and the German notary have failed to disclose the existence of prior charges to the Issuer and the notary has failed to take necessary steps to register the security despite confirming to the German solicitor that it has done so.
In advancing the loans, the Issuer has relied on the letter dated 30 January 2019 from its German legal counsel at the time where it confirmed to the Issuer that ''the first charge security has been transferred into the name of GLB' and the conditions precedent under the loan documentations have been satisfied and the Issuer could therefore advance the loan.
It appears on a preliminary review that the German legal counsel was negligent in making this statement as the confirmation given on 30 January 2019 appears to have been based only on oral conversations with the German notary. Furthermore, it appears that the German legal counsel did not carry out independent standard checks with the German land registry to verify the statements provided by the German notary. Further investigation would be required as to whether the actions of the notary were negligent or fraudulent.
11.The Issuer is required under the programme documentation to have a reserve account. Has such account been set up?
The Issuer has set up a reserve account as required by the programme documentation. The Issuer is currently reviewing its cash flows and funds in relevant accounts. Further details on this will be provided in the next update.
Date of next update:
The Issuer will be publishing regular updates on the matter and the next update will be published by the Issuer on Monday 27 January 2020.
Update to Q&A of 10 January 2020:
Question 8 of the Q&A dated 10 January 2020 stated that Regal Consultancy (International) Limited ("Regal") acted as a placement agent to this issue. To clarify, in September 2018, Regal entered into an agreement with SHB whereby it was appointed as a distributor of the notes issued by GLB. Subsequently, Regal introduced only one investor who subscribed for the notes. This constitutes Regal's only involvement with the notes programme. Regal did not carry out any of the additional functions of a placement agent and had no involvement in the creation, arrangement or maintenance of the notes.
|emitter:||German Listed Bonds plc|
Brompton Place, 161 Brompton Road
SW3 1PQ London
|contact person:||Dr. Anh-Duc Cordalis|
|stock exchanges:||open market (free market) in Frankfurt|
|other stock exchanges:||SIX Swiss Exchange, Cayman Islands|