Deloitte said in an April 24 statement that the defaults stemmed from the building’s complex, multi-currency capital structure. “Adverse interest rate and currency movements have caused the total senior liabilities secured by the property to increase materially,” the firm said.The building, bought for 600 million pounds in 2007, was valued at 473 million to 520 million pounds in 2012. I can't quite figure the debt, but think it's near 550 million pounds.
Rate swaps allow borrowers to keep payments within a fixed range even if interest rates fluctuate more widely. When rates fall, customers might pay higher costs for the swap to keep payments within the agreed range.
Thursday, May 01, 2014
Here is complex bankruptcy story, as detailed by Bloomberg. The Gherkin tower (the building shaped like a football) in London became the highest profile London property bankruptcy since Canary Wharf in 1992. It looks like the borrower's hedging backfired, causing its liabilities to increase: