MetLife refinances Woolgate Exchange to keep pace with tightening credit spreads

MetLife has refinanced the joint TPG and Ivanhoé Cambridge-owned Woolgate Exchange with a fresh £164m five-year senior loan just 12 months after closing the original acquisition financing, CoStar News has learned, in the most significant rapid refinancing since the market upswing to keep pace with ever-tightening senior credit spreads.

MetLife logoTPG acquired Woolgate Exchange in a joint venture with Ivanhoé Cambridge, the real estate subsidiary of Canadian institutional fund manager Caisse de dépôt et placement du Québec, from D2 Private for £265m and first secured financing from MetLife in December 2012, as revealed by CoStar News.

CoStar News understands the original senior loan was priced around 275 basis points over three-month LIBOR, while the fresh five-year senior loan which matures at the end of January 2019, was priced at below 200 bps.

While MetLife confirmed the Woolgate Exchange refinancing, the US insurance lender declined to comment on the loan pricing.

The £164m Woolgate Exchange refinancing is MetLife’s first UK senior loan closure of 2014, following securing around £760m ($1.27bn) worth of senior loans last year – a consistent annual volume of deal flow by the US insurance lender in the last two years which is expected to be matched again in 2014.

A spokesperson for MetLife said: “Our pipeline is strong and we expect loan volume in line with last year. We remain focused on larger prime assets and strong sponsors. We closed on one loan totalling £164m (approximately $272m) in 2014.”

In the last 18 months, margins on UK senior loans secured by prime central London offices have tightened by an average of almost 100 basis points – from around 250 bps to between 150 bps to 175 bps, relative to bespoke asset dynamics.

This credit spread tightening is a function of increased senior debt capital seeking deployment as both the number of new entrants rises as well as increased appetite from traditional bank lenders.

Improvements in the economic outlook for the UK – as well as the gradual stabilisation of formerly distressed markets in Europe such as Ireland – is trickling down to positive sentiment in occupier markets, which is supporting improved leasing terms from commercial properties.

These positive variables, coupled with an abundance of liquidity, to prompting borrowers to reconsider their business plans for acquisitions acquired in the last 12 months to two years ago, including contemplating early asset disposals to crystallise greater short-term profits as well as restructuring the capital stack securing assets on more favourable terms.

Opportunistic senior and mezzanine lenders have begun targeting prime assets refinanced 18 months to two years ago to seek to undercut existing financing structures in respect of loans margins and fees.

Borrowers often only have to repay reasonably modest early prepayment clauses which can be offset through favourable refinancing terms including, in some cases, a cash-out refinancing, where a borrower seeks a refinancing at a higher leverage to extract equity and crystallise profits.

An example of this was Blackstone’s re-securitisation of Chiswick Park which closed in June last year, enabling Blackstone to take a £55m profit out as a result of the higher valuation and leverage ahead of the eventual sale of the West London office campus to GIC, Singapore’s sovereign wealth fund, for £780m on Christmas Eve last year.

MetLife’s refinancing of Woolgate Exchange, which closed six weeks ago CoStar News has learned, whether prompted by Ivanhoé Cambridge and TPG or opportunistic lenders seeking to undercut its legacy loan margins, MetLife’s refinancing staves off a loan take-out.

Last year, MetLife’s major UK senior loans comprised:

Globally, MetLife, through MetLife Real Estate Investors, closed approximately $11.5bn in commercial real estate loans in 2013, with the UK’s $1.27bn in UK commercial property loans MetLife’s largest international component, followed by $500m in Mexico, $400m in Japan and $225m in Chile.

For MetLife, which has a global commercial property loan book of more than $42bn, commercial mortgage lending is designed to match the insurance companies’ long-term liabilities the company writes through its insurance products.

“MetLife was prolific across a variety of real estate sectors in 2013,” said Robert Merck, senior managing director and global head of real estate investment for MetLife in a prepared statement in yesterday’s annual results.

“We strengthened our position as a leader in commercial mortgage lending both domestically and internationally. In addition, we expanded our activity in the asset management space and anticipate continuing to creating attractive opportunities for institutional investors.”

Woolgate Exchange: Ivanhoé’s convoluted acquisition

Ivanhoé Cambridge and TPG’s acquisition of the 340,000 sq ft trophy asset, at 25 Basinghall Street, was convoluted.

Originally, TPG sourced the direct property investment opportunity through Cheyne Capital Management, one of the principal CMBS bondholders in the legacy Cornerstone Titan CMBS.

Cheyne and TPG bought the legacy B-Loan together and then in turn TPG acquired Woolgate Exchange with Ivanhoé Cambridge in a joint venture.

CoStar News understands that Ivanhoé Cambridge is the majority equity partner with around 95% to TPG’s 5%, although Ivanhoé’s capital is managed through a TPG separate account.

Previous owner D2 Private bought the City of London office block from Hamburg-based investment bank Bankhaus Woelbern in early 2006 for £325m and was unable to repay the balance of the senior and junior loan at maturity in July 2011.

Over two years ago in February 2012, Maylasian pension fund Permodalan Nasional Bhd (PNB) was under offer to buy Woolgate Exchange, but the sovereign wealth fund’s conservative view over the covenant strength of the majority lease to West LB, scuppered the deal.

About CoStar News

Finance Editor, CoStar News
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