Deutsche Bank is expected to close the €250.04m DECO 2014-Tulip CMBS by the tomorrow morning.
The European investment bank issued pricing guidance for DECO 2014-Tulip, the first multi-loan and sponsor securitisation comprised of Netherlands real estate since the global financial crisis, on Friday.
Pricing guidance – now with confirmed Standard & Poor’s and DBRS ratings – was as follows:
- Class A: the €170m AAA notes at 3mE+105bps; 38.9% LTV, 4.0 WAL;
- Class B: the €20.00m AAA/AA (S&P/DBRS) notes at 3mE+130bps; 43.4% LTV, 4.2% WAL;
- Class C: the €20.00m AA+/A (high) notes at 3mE+165bps; 48.0% LTV, 4.2% WAL;
- Class D: the €20.00m AA/A(low) notes at 3mE+190bps; 52.6% LTV, 4.2 WAL;
- Class E: the €20.04m A/BBB at 3mE+245bps; 57.2% LTV, 4.2 WAL
Based on the initial pricing guidance, the blended coupon for the €250.04m notes is 129.8 bps over three-month Euribor, implying a considerable profit for Deutsche Bank given the margins at which the two senior loans were underwritten.
DECO 2014 Tulip is comprised of two senior loans:
- the €125.49m Windmolen Loan extended to PPF Real Estate Holding –secured by eight offices and one retail property – and priced at 500 bps over three-month Euribor;
- the €124.5m Orange Loan extended to a Mount Kellett-led joint venture –secured by 11 retail properties – and priced at 310 bps over three-month Euribor.
The blended margin for the two loans in DECO 2014 TULIP is, therefore, 405.4bps over three-month Euribor. The net profit margin, based on the above estimates therefore is 275.6bps, excluding upfront and ongoing costs.
This would imply an initial annual profit for the DECO 2014 Tulip CMBS of around €6.5m, which will decline in line with the differing amortisation schedules of the two loans with the higher margin Windmolen Loan amortising faster.
Upfront costs include rating agency and legal fees, while ongoing costs comprise liquidity, cash manager and accounting fees. The single largest cost will be Deutsche Bank’s fee for the €28m liquidity facility it has provided – mandatory for a AAA rating from the rating agencies.
The Windmolen and Orange loans are hedged with borrower-level swaps and interest rate caps.
The two loans are secured by 20 retail and office properties over 142,672 sq m in the Netherlands, with a combined market value of €438.85m. The occupancy level is 81.1%, and there are 76 tenants which have a weighted-average lease term to first break of 5.7 years.
In S&P’s pre-sale, the rating agency reported that the Windmolen loan and the Orange loan had potential net annual cash flows of €17.0m and €15.1m, respectively, on a sustainable basis.