M&G Investments has emerged as the provider of up to €100m in a five-year mezzanine loan, as part of a wider investment in the €754m Florentia CMBS secured by Vitus Immobilien’s near 30,000-strong German multi-family portfolio, CoStar News has learned.
The European asset manager, a subsidiary of insurance giant Prudential, is believed to have extended the loan after GIC, Singapore’s sovereign wealth fund, which was originally lined up, fell away before the summer. The refinancing deal took more than 18 months to close.
The €100m mezzanine loan refinances the downsized €122.37m facility under the Barclays Capital-issued Centaurus Eclipse CMBS, which was held in a syndicate led by Commerzbank.
The complete refinancing capital stack, including the agency-style secruitisation arranged by Deutsche Bank, comprises €1.35bn of debt in five tranches against a December 2011 valuation of €1.51bn, taking the entire LTV to 89%. This is comprised as follows:
Tranche Cumulative LTV
Continuing Debt €207.43m €207.43m 13.7%
A1 Senior Loans €754m €961.43m 63.6%
A1 Junior Loans €133.05m €1.094.48m 72.4%
A2 Loan €100m €1.194.48m 79.0%
Mezzanine loans €151.6m €1.346.08m 89.0%
CoStar News understands that M&G Investments took the “A2 loan” while the €151.6m “mezzanine loan” is an additional subordinated loan previously secured at the underlying five-strong property company level, which has been acquired by Brooklyn Capital, a Luxembourg-listed securitisation vehicle.
M&G Investments declined to comment.
In the event of default, the A2 lender – M&G Investments – could enforce its share security effectively bringing in a new sponsor, which would trigger the repayment of the CMBS debt unless the buyer is pre-approved by the issuer and Vitus, analyst Chalkhill Partners reported today.
“Nonetheless, it creates an incentive for Vitus to manage the portfolio well and seek to maximise recovery,” wrote Monica Filkova, CMBS analyst at Chalkhill Partners.
The super-senior “continuing debt” loans are long-dated German government subsidy loans and have an average interest rate of 2.29%. The “A1 junior loans” are inter-company loans which Vitus has effectively lent to itself.
Across the combined continuing debt and securitised loan, the LTV is 63.6%, which is scheduled to reduce to 60% by the maturity in October 2017.
The underlying Vitus German multi-family real estate portfolio comprises 28,859 residential multi-family units within 330 commercial units, as well as 7,124 parking spaces and 421 miscellaneous units across a total rentable area of 1.88m sq m.
CoStar News was the first news service to report the refinancing of the previous Centaurus Eclipse CMBS six months ago – and was first to reveal the central role of JPMorgan as a cornerstone CMBS investor, which the Financial Times has since revealed took as much as €565.5m in a 75% vertical investment throughout the five-tranche CMBS stack.
“Given the lack of investor base for CMBS in Europe, having a large lead buyer could help execution and may be a useful model for future transactions,” wrote Mark Nichol, research analyst at Bank of America Merrill Lynch.
M&G Investments also invested in the Florentia CMBS – the first Continental European CMBS in four years – along with Ignis, Cheyne and ING, according to a separate FT report today.
Freshfields Bruckhaus Deringer, the international law firm which advised Vitus, has confirmed that a concurrent strategy of refinancing the maturing Centaurus CMBS debt with German pfandbrief banks was also considered as “an alternative method for refinancing its senior debt, although not ultimately used”.
Nichol wrote: “Many German banks prefer to lend up to €100m in size, so FLORE 2012-1 likely would have required a club of around seven banks, which may have been difficult to coordinate, in our view.
“By contrast, the single CMBS loan may have been cleaner to put in place and easier for Vitus to manage going forward. Qualitative advantages such as these appear to have made the CMBS, at a weighted average note margin of 300 basis points, preferable to bank debt potentially at a loan margin at or below 225 bps, to our thinking.”
Exactly one week after Florentia priced on 21 September, the Royal Bank of Scotland closed the £463m Isobel Finance securitisation of a loan secured by the £1.36bn nominally-valued Project Isobel UK property loan portfolio.
RBS placed £290m and retained the £173m BBB+ tranche, which offers a thin coupon of just 450bps over three-month LIBOR, also first reported by CoStar News.
“The ISOBF 1 transaction could serve as a model for other banks to dispose of commercial real estate loans (performing, underperforming or non-performing) as banks look to reduce non-core commercial real estate assets. If so, this could lead to more CMBS issuance in the future,” wrote Nichol.
He added: “Selling large portfolios of CRE loans is likely to require debt financing to maximise the sale price, and the bank itself may be the cheapest lender since it already has the risk on its books and knows the assets better than any third-party financier.”
RBS provided a four-year £553m senior loan, with a one-year extension option, at 450 bps over three-month LIBOR, which was 100 bps cheaper than the best prices available by investment banks Citigroup and Goldman Sachs at the time of closure of Project Isobel with Blackstone last December.
“This model may serve to convert sub-performing loans into performing loans and help to free up regulatory capital,” added Nichol.
Two European securitisations in a week – added to Deutsche Bank’s Merry Hill CMBS back in February, which was also first reported by CoStar News – is unlikely to herald a return of the market to any notable extent with each of the three transactions this year reflecting bespoke circumstances rather then a meaningful uptick in investor demand.