Morgan Stanley to refinance Mall Fund with £375m five year senior loan

Morgan Stanley has been selected by the board of the £685m Mall Fund to refinance the maturing securitised senior loan with a fresh £375m five-year facility, paving the way for noteholders in the existing CMBS to be repaid at par in the coming months.

Morgan Stanley (correct)CoStar News understands that the Mall Fund stakeholders, which is circa 50% and 30% owned by Aviva Investors and Capital & Regional respectively, opted for a single bank refinancing option over the originally envisaged club deal for which the final composition was never settled.

One of the conditions set out by Aviva Investors and Capital & Regional was for the eventual lender to not securitise the senior loan, preferring to retain greater clarity over the identity of underlying senior lenders.

Morgan Stanley, which operates an originate-to-distribute model, has increased its capacity to hold senior debt beyond the narrow hold mandate employed upon its return to UK senior lending 13 months ago with the £190m financing of Blackstone’s £265m acquisition of the Adelphi building.

An eventual syndication, with a greater hold, is expected by Morgan Stanley, CoStar News understands.

Morgan Stanley is understood to have priced the five-year senior loan at around 185 basis points over three-month LIBOR. The five-year senior loan, secured by six shopping centres throughout the Midlands, the south of England and the North West, is structured as a £350m investment loan and a £25m capex facility to upgrade certain assets in the pool.

Based on an end of December £684.65m valuation of the six shopping centres – across Blackburn, Camberley, Luton, Maidstone, Walthamstow and Wood Green – the LTV is 54.8%.

Underbidders on the full term sheet include Lloyds Banking Group while term sheets for participation in the never finalised club deal including from Helaba, RBS, Wells Fargo and Deutsche Pfandbriefbank.

Rothschild ran the refinancing process for the Mall Fund, which was codenamed Project Maple.

Project gross annual rent roll for 2014 is £55m, which is reduced to £53m when adjusted for rent-frees and bad debts, which in turn is further reduced to £43m on a net operating income (NOI) basis, which excludes occupancy and void costs.

Occupancy levels across the portfolio are at 91.1%, with the unexpired lease term to break clauses at 8.8 years and to 9.6 years to full expiry.

Prior to the UK property crash, the Mall Fund was the largest shopping centre portfolio in the UK with 24 assets nationwide valued at just under £3bn and secured by £1.7bn in total debt.

Aviva Investors, the fund manager for the Mall Fund, has undertaken a substantial deleveraging and disposal strategy since which time to return the fund to a stabilised and conservatively leveraged position ahead of this refinancing.

All parties declined to comment.

About CoStar News

Finance Editor, CoStar News
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