Chalkhill Partners prices £107m secured bond for Avenue Capital affiliates

Chalkhill Partners, the boutique investment bank, has priced a £107.26m five-year secured floating rate bond financing affiliates of Avenue Capital Group’s on its acquisition of four UK student accommodation blocks.

chalkhill logo newThe £107.26m bond, issued through AYR Issuer S.A., has a closing LTV of 60%, net of a £3m prefunded six-month interest reserve retained by the issuer.

CoStar News understands that under 10 separate accounts, comprised of predominantly credit funds, acquired the bond which was priced at 145 basis points over three-month LIBOR. 

The four student accommodation properties were acquired between October 2013 and April 2014.  In July, Knight Frank valued the assets at £173.77m, comprising:

  • The 369-bed Leicester Summit, linked to De Montfort University and University of Leicester, was built in 2012 and is valued at £25.38m;
  • Nottingham 1, 2 and 3, linked to University of Nottingham and Nottingham Trent University, has 1,086 beds over the three block plus 10 apartments.  Built in 2009 and 2011, the combined value is currently £61.32m;
  • Shakespeare House and Milton House, Trinity Square, is linked to Nottingham Trent University and University of Nottingham, has 623 beds plus 76 studios and built in 2008 and is valued at £34.82m;
  • The 992-bed Sheffield 3, linked to University of Sheffield and Sheffield Hallam University, was built in 2009, and is valued at £52.25m.

The bond, which has a five-year term, with a two-year extension option, was structured using CMBS-like structuring and was an agency transaction, which directly links the borrower’s cost of debt to the sale margin achieved.

The transaction will benefit from a five-year tail period between the original loan maturity, August 2019, and the legal final maturity date, August 2024.

The single tranche transaction is cross collateralised by a secured loan that the issuer granted to four borrowers, each owning one of the four assets and all of whom are wholly-owned by affiliates of Avenue Capital.

Standard & Poor’s has rated the corporate bond A (sf), which has been structured to provide for additional tap issues to fund future UK student accommodation acquisitions by affiliates of Avenue Capital.

Future acquisitions, funded through AYR Issuer S.A., have a 60% LTV celling.  The assets must be in cities with a minimum full-time population of 15,000 students and the lot size must have a minimum of 300 beds. Any new asset has to minimum 85% en-suite.

Under the terms of the loan agreement, the loan must ensure that the net LTV does not, at any time, exceed 80%.  There is no scheduled amortisation.

The prefunded six-month interest reserve acts as a liquidity support to mitigate the risk of borrower insolvency and payment disruption.

Avenue Capital Student Real Estate (ACSRE), a new start-up real estate investment company that focuses on actively managing purpose built student accommodation, is the asset manager.

Solutus Advisors has been appointed servicer and special servicer.  Solutus will receive 0.025% per annum on the outstanding balance in primary servicing, rising to 0.075% per annum in the event of special servicing.  Fees are paid in line with interest payment dates (IPD).

S&P wrote, in its rating announcement: “Following the issuances from UNITE (USAF) II PLC in 2013, this is the second use of commercial mortgage-backed securities (CMBS) technology in the past two years to finance UK student accommodation.

“Our preliminary rating on the notes reflects our evaluation of the underlying real estate collateral. The properties are all modern, purpose-built student accommodation, located in popular university towns. Each property benefits from a prime location.”

Chalkhill Partners said in a statement: “ACSRE has built an impressive platform in the growing student accommodation asset class and this represents a rare opportunity for institutional debt investors to gain exposure to high quality assets in the sector. 

“The tapable deal structure has been specifically designed to allow for the sponsor’s future growth strategy, whilst the pricing, inside of the banking market, reflects strong investor demand.”

About CoStar News

Finance Editor, CoStar News
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