D eveloper Noel Smyth will sit down at 11am tomorrow morning in the London offices of solicitors Clifford Chance and try to convince debt holders to support his proposal to remedy a loan to value (LTV) convenant breach in his £200m (€230m) bond. "You can never be confident," Smyth said last week, because it's an issue for the bondholders, but "we have done all the groundwork… all the indications I've got are positive".

The Alburn bond, secured on the group's UK investment portfolio, breached its LTV covenant after the value of its portfolio fell 44% to just over £139m from £250m when the bond closed in 2007. The bond is known as a convertible mortgage backed security (CMBS) because it is secured on property assets. The covenant breach has not been remedied, causing a "loan event of default", according to a stock exchange last month.

Smyth has been busy drawing up a proposal to deal with the breach, which includes the sale of £50m worth of properties before the loans mature in four years.

In addition, the LTV convenants would be amended as would the interest cover ratio covenants. Surplus cash flow would be "swept into a new account" and used to amortise the senior loan while every six months a desktop valuation would be carried out on the portfolio, with a full valuation due in April 2011 and October 2012. A number of other proposals have also been made, including the payment of "a consent fee to consenting noteholders upon the amendments taking effect and in 2011 and 2012".

Smyth says he's the first of 275 CMBSs to get to the stage of being able to offer the bondholders revised terms on the LTV breach. He said that he and his finance director Johnny McKenna, who will also be at the meeting, have been working on the proposals for 15 months. "It's a huge, huge job. It doesn't matter if it's €200m or €2bn, it's the same amount of work involved. You just have to get stuck in and hope you get a good result," Smyth said.

Alburn is by no means alone in problems with its CMBS. Simon Halabi, once a British property tycoon, had winding-up petitions served by the UK's revenues and customs last week which could affect six of the nine assets which form the collateral for his Irish-listed White Tower 2006-3 CMBS. Revenue and customs says it is owed nearly £4.8m plus interest and other costs. Court hearings in relation to the petition have been scheduled for 21 and 28 October. CBRE, the bond's special servicer, said last week that it is considering various options, to "minimise any impairment on debt recovery to noteholders".

"We are currently in discussions with the borrowers and our advisers with a view to finding an immediate resolution to this issue," CBRE told the stock exchange last Wednesday.

Later this month, bondholders in Glenn Maud's Irish-quoted Gemini (Eclipse 06-3) CMBS will vote on an extraordinary resolution to amend its liquidity requisite ratings. The CMBS breached its LTV covenants last year and work has been underway by the special servicer since then to "protect capital values against further deterioration" and to protect noteholders' income.

In unrelated deals, Maud invested with retired property syndicator Derek Quinlan in the Banco Santander headquarters in Madrid and an office tower in London's docklands.

Internationally, CMBSs are suffering from the downturn in the property market. Moody's said last month that falling property values and lower rental payments continued to hurt CMBSs in the second quarter of this year, while the failure of borrowers to refinance debt may accelerate deterioration in loan performance, Moody's said in a report. Two weeks ago it said the securities had become "uneconomical" for banks to sell because of the increased risk premiums demanded by investors during the credit crises.

It's also not limited geographically. In the United States, Federal Reserve and Treasury officials are worried by a surge in foreclosures in the $700bn CMBS market there, with Alexander Goldfarb of investment bank Sandler O'Neill telling Forbes recently that the CMBS "machine… has essentially shut down" and that "refinancing debt is going to require some conversion to equity". CMBS defaults in North America doubled last year and are expected to grow further, Standard & Poor's said last month. It will be many months before we know if the CMBS model returns to favour after the financial turmoil of the last year.