Bloomberg News

RBS’s Epic Commercial-Mortgage Bonds Suffer Principal Loss

October 20, 2011

(Adds fact this is Europe’s first loss in lead paragraph.)

Oct. 20 (Bloomberg) -- Royal Bank of Scotland Group Plc’s Epic (Industrious) Plc commercial mortgage-backed securitization suffered a 79 million-pound ($125 million) principal loss on its senior bonds, the first such loss in Europe.

Investors in Epic’s 299.7 million pounds of top-rated class A notes were repaid 221.02 million pounds, according to data compiled by Bloomberg. Mezzanine and junior notes totaling 173 million pounds were fully written off.

It’s the first European CMBS issue to suffer a loss on its senior notes, according to Barclays Capital and SG Cross Asset Research.

“To our knowledge, this is the first European senior class formerly rated AAA that suffered a principal loss,” said Christian Aufsatz, a CMBS analyst at Barclays in London. “The deal suffered from a portfolio fire sale at the bottom of the market.”

RBS issued total 487.5 million pounds of bonds on September 2006, according to Bloomberg data. The synthetic transaction was secured on 120 industrial properties in the U.K., according to Moody’s Investors Service, which gave the senior rated notes at its top investment grade.

In a synthetic transaction, the risk of owning the underlying debt is transferred to investors through credit- default swaps.

--Editors: Paul Armstrong, Andrew Reierson

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net


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