Deutsche Bank has sold the €38.6m class Cs in the €406.1m Monnet Finance, the securitisation of 10 property loans secured by a 9,551-strong German multifamily portfolio, to Insight Investments and Cheyne Capital at a coupon of around 4.25%, CoStar News has learned.
Insight Investments are thought to have been prepared to take the entire €38.6m, but Deutsche Bank was able to secure a second account which effectively supported the validity of the circa 4.25% coupon.
Deutsche Bank launched the sale of the class Cs last Tuesday, agreed the trade by Friday with Insight and Cheyne, and closed this Tuesday.
The LTV on the class Cs begins and ends at 57.5% and 63.9%, respectively.
Monnet Finance is a re-securitisation of the majority outstanding Quokka Finance CMBS as well as a minority of addition German multi-family assets, owned by BGP Investment, the holding company for legacy joint venture partners Babcock & Brown and GPT.
For Insight and Cheyne, the purchase of the notes at around the 4.25% level reflects perceived value relative to pricing in recent German multi-family CMBS new issuance, comparable secondary bond pricing, as well as limited new issuance and the need to deploy capital.
In addition, the class Cs benefit from disproportionately favourable treatment in the event of early prepayment of the bonds.
Deutsche Bank pre-placed the €289.4m class As, which have a 1.92% coupon, and the €57.7m class Bs, which have a 3.26% coupon, with JPMorgan, while the €20.4m class Ds, reflects the 5% “skin in the game” hold by BGP Investment, under the EU’s Capital Requirements Directive (CRD) for banks and investment firms.
From Insight and Cheyne’s perspective, with JPMorgan above them, and BGP Investment, would have brought a confidence in the capital stack hierarchy in the event of potential distress at the underlying property portfolio level.
The underlying Monnet Finance property portfolio comprises 9,551 residential units throughout Germany and 403 commercial units, valued at €603.4m, and a vacancy across the majority residential element of the portfolio of 8.7%. Approximately 49.9% of the gross rental income comes from Berlin, Kiel and Cologne.
In respect of the structure of Monnet Finance itself, the partial rated and unrated feature of the transaction is noteable.
Pension funds, insurance companies and fund managers mostly require ratings in order to purchase CMBS bonds, but there is a pool of investors which do not require ratings, as is reflected in this transaction, as well as the refinanced and re-securitisation of Blackstone’s Chiswick Park senior loan, also sold by Deutsche Bank.
The extent to which future transactions are rated only in line with pre-placements and anticipated sales to so-called ‘real money’ investors, with the remaining junior bonds offered on an unrated basis appears to be an emerging trend, which is both more efficient in terms of time and cost, for issuing banks and end investors for such paper.
Monnet Finance was named after the street name of sponsor BGP Investment’s Luxembourg office, 6 rue Jean Monnet.
All parties declined to comment.