IVG takes currency hit on five-bank Gherkin loan

IVG Immobilien, the joint venture partner of the Gherkin office tower, needs to raise up to £75m in fresh equity from investors to plug a currency liability in the Swiss franc loan securing the City of London trophy, driven by the currency’s strengthening against the sterling over the last 12 months.

The German real estate investor’s IVG Euroselect 14 fund acquired the City of London tower at 30 St Mary Axe in a joint venture partnership with Evans Randall for £630m in March, financed with a 15-year £396m senior loan provided by a five-strong consortium of banks led by Bayerischen Landesbank (BLB).

BLB, along with Heleba, Deka Bank, ING Real Estate Finance and LBBW, provided the acquisition finance equally to IVG and Evans Randall, with the Euroselect 14 fund’s 46.5% portion of the total debt denominated in Swiss francs.

Costar News understands that the blended margin on the 15-year senior loan, reflects pre-credit crunch pricing at below 75 basis points.

The outstanding balance on the Swiss Franc component of IVG’s loan has an increased liability due to the weakening of the sterling against the Swiss franc, particularly in since the deepending of the eurozone crisis from last summer.

From a high on 9 August 2011 of £1.14 to one Swiss franc, sterling has weakened to £1.51 to one Swiss franc today.

As a result, IVG’s five bank lenders have requested this shortfall is plugged and the German fund manager is holding an investor meeting today at which the need for a cash call on the Euroselect 14 fund’s circa 9,000 underlying investors will be raised.

IVG may seek to negotiate downwards this £75m currency liability with the five bank consortium.

Evans Randall’s 53.5% stake in the original £396m senior loan, or £211.86m, is entirely sterling-based, and is therefore unaffected by the IVG fund’s increased currency liability.

When IVG drew down its share of the loan to finance the trophy asset acquisition five and a half years ago, the German fund hedged interest payments but did not hedge the principal repayment amount.

As a result, the fund was left exposed to currency fluctuations over the life of the 15-year loan. Had sterling strengthened against the Swiss franc instead of weakening, IVG’s loan balance would have conversely shrunk.

The absence of a hedge on principal Swiss franc-denominated repayments was effectively a play on currency movements between sterling and the Swiss franc in addition to the pure property play. It is not known whether IVG intentionally chose to make such an implicit currency bet.

The loan, which has amortised over since February 2007, matures in February 2022, 12 months before the lease on anchor tenant Swiss Re expires.

The City tower at 30 St Mary Axe is fully let, and is currently valued at £531m, almost £100m below the £630m purchase price.

IVG is one of Europe’s largest real estate and infrastructure companies. The company manages assets worth approximately €21.5bn at 19 sites with around 600 employees.

IVG and Evans Randall declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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