Is process similar to CMBS regarding special servicing etc? If a 2021 CLO issuance with let’s say 15 loans and a total balance of $750M has several loans (with same borrowers) that default due to not being able to cover debt service, and borrower can’t cure, does the lender take props back? I was talking to a capital markets guy last week who said he’s seeing a lot of conversations happening between those lenders and new investor groups offering to come in with pseudo rescue capital to finish the capex. Basically a JV with the lender. Anyone else seeing or hearing about this?
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Based on the most helpful WSO content, the process for handling defaulted loans in a CLO (Collateralized Loan Obligations) can be similar to that of CMBS (Commercial Mortgage-Backed Securities). When a loan defaults, it typically transfers to a special servicer.
In the case of a CLO issuance with several defaulted loans, the lender may indeed take back the properties if the borrower can't cover the debt service and can't cure the default. However, this can depend on the specific terms of the CLO and the underlying loan agreements.
As for the scenario you mentioned about new investor groups offering pseudo rescue capital, it's not unheard of. These groups might offer to inject capital to finish the capex in a sort of JV with the lender. This can be a way for the lender to mitigate losses and for the investor group to potentially acquire assets at a discount. However, the specifics can vary widely depending on the situation and the parties involved.
Remember, while I strive to provide accurate and helpful information, it's always a good idea to consult with a professional or someone with direct experience in these matters for advice tailored to your specific situation.
Sources: CMBS B-Piece Buyers, Bond / fixed income jargon, Debt Funds & CLOs, Buying REO from Special Servicers
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