Bank of America Merrill Lynch issued the five-tranche €1.07bn Taurus 2013 GMF 1 CMBS on Friday afternoon, secured by Gagfah’s 46,151-strong Dresden multi-family-focused “Woba” portfolio, in the first new issuance European CMBS of the year.
BAML’s return new issuance has been expected since Gagfah confirmed in early February that the global investment bank refinanced the maturing CMBS loan, split equally between Lehman Brothers’ Windermere IX and Deutsche Bank’s Deco XIV.
The Taurus 2013 GMF 1 five-year CMBS loan – maturing 21 May 2018, with a six-year tail period and inclusive of a one-year extension option – is structured as a hybrid fixed rate-floating rate basis, with 95% over fixed interest rate, and the balance paying a floating rate spread linked to three-month Euribor.
BAML underwote two fixed rate senior loans, worth €1.02bn, priced at 240 basis points over three-month Euribor, and two floating rate senior loans, together worth €53.8m priced at 225 bps, with all four loans funding on 20 February.
Jones Lang LaSalle valued Gagfah’s Woba portfolio at €1.79bn in February, taking the LTV to 60.3%.
Notes in Taurus 2013 GMF 1 Plc will be priced over three-month Euribor, and with a weighted average lease for each of the five classes of 4.9 years. The new issuance – without pricing guidance – is comprised as follows:
• Class A: €710m – AAA/AAA at 39.8% LTV;
• Class B: €130m – AA/AA at 47.1% LTV;
• Class C: €120m – A/A at 53.9% LTV;
• Class D: €95m – BBB/BBB at 59.2%LTV
• Class E: €19.8m – BBB/BBB Low at 60.3% LTV
HSBC is providing a €35m liquidity facility and is also joint bookrunner alongside BAML.
Fitch Ratings and DBRS have rated Taurus 2013 GMF 1 Plc, although their pre-sale reports are not yet published, and Situs Asset Management is the master servicer.
The first interest payment date (IPD) is scheduled for 21 August, while the legal final maturity is 21 May 2024.
BAML also published the “pink” offering circular on Friday afternoon, the colour-denomination implying that some structural changes could yet be incorporated before the final CMBS finally prices and settles.
This is BAML’s first since the global financial crisis, and before its corporate merger, when Merrill Lynch issued the 13-loan multi-jurisdiction €549.89m Taurus CMBS pan-Europe 2007-1, which was issued just over six years ago.
It is the first European CMBS since Vitus Group’s Florentia last September, another re-securitisation from a legacy German multi-family securitisation, and is expected to be the first of a pipeline of at least four new deals, including:
- a second by Gagfah, expected to be brought to market by Goldman Sachs and now understood to be north of €700m in size, partially refinancing the maturing €2.08bn German Residential Funding CMBS;
- Toys R Us is expected to issue the £263m Debussy DTC CMBS, from the current fixed rate bridge loan from two principal existing CMBS note holders, PIMCO and Marathon Asset Management
- Deutsche Bank is working on a £400m re-securitisation of Blackstone’s Chiswick Park, as part of the private equity firm’s cash-out refi
- Deutsche Annington is also understood to be looking to bring ‘mini GRAND’ CMBS to market to meet, in part or whole, the €700m refinancing target for 2014
Gagfah’s Woba portfolio – comprised of 37,096 multi-family units, 854 commercial units and 8,201 parking and other units – are all located in Dresden, with the exception of 2% by value which are located in Zwickau, a medium-sized city around 100km west of Dresden.
In accordance with Capital Requirements Directive’s “skin in the game” requirements, BAML will retain a material net economic interest of at least a 5% vertical slice in Taurus 2013 GMF 1.
The class X in Taurus 2013 GMF 1 – known here as the “detachable A coupon” (DAC) – continues to pay out to the issuer, BAML, even if there is a default during the loan’s initial five-year term.
In reality, this is considered very low risk in German multi-family CMBS deals and the greater risk is in the eventual refinancing of the outstanding balance at the expected maturity date of May 2018, by which point the DAC will automatically shut off, regardless of whether the one-year extension option is exercised.
During the loan term, the liquidity facility cannot be drawn to pay the DAC.
The two principal financial covenants for Taurus 2013 GMF 1 comprise a debt service cover ratio (DSCR) of at least 125% and an LTV which must not exceed 75%. Tests will be carried out bi-annually on 30 June and 31 December each year.
There will be a 50% cash trap if LTV is more than 67.5%, which will rise to a 100% if LTV is above 70%, the DSCR is less than 135% or the extension option has been exercised.
Taurus 2013 GMF 1 includes a scheduled amortisation of 1% per annum. If Gagfah seeks to exercise the one-year note extension option in May 2018, a one-off extension fee of 1.0% will be payable to bond holders, and a further step-up margin of 50% of the spread for each class of notes will apply during the extension.
The 2,199,649 sq m WOBA portfolio has a gross rental income of €125.5m, an estimated total rental value – including development sites – of €133.2m, and a net initial yield of 4.4%.
Gagfah has a “hold-and-improve” business plan for the Woba portfolio, with the current 4.7% vacancy rate expected to be reduced toa structural vacancy of 2-3% over the next five years.
Gafah is expecting an average annual rental increase across the portfolio of 1.3% per annum until 2018.