Morgan Stanley has carved up the fixed rate tranche of the £380m senior loan secured by Capital & Regional’s six-strong UK Mall Fund and sold on the tranche as an unrated commercial mortgage-backed bond to a single major investor.
Capital & Regional refinanced the legacy debt, The Mall Funding Plc CMBS issued by Credit Suisse in 2006, in June this year with a two tranche facility, comprised of a £233.3m fixed rate tranche, a £116.7m floating rate tranche and a £25m capex facility.
CoStar News understands that the £233.3m fixed rate tranche has been sliced into an A and B loan, with the £196.666m Zephyrus tranche sold to one real estate bond investor and the £36.634 B Loan has been sold on to a separate investor.
At the time of the refinancing in June, Capital & Regional reported in a Stock Exchange announcement that the £233.3m fixed rate tranche carried” an interest fixed at 1.86% plus applicable margin”.
On 3 November, Capital & Regional – which will convert to a REIT on New Year’s Eve – increased the undrawn £25m capex facility by £5m and converted the entire £30m into a floating rate facility, increasing the existing £116.7m tranche to £146.7m.
In its interim results, on 13 November, Capital & Regional reported that this amendment “will increase the interest rate margin by 20 bps across the £380m facility, meaning that on draw down the cost of debt would be 3.45% based on current three month LIBOR”.
The £30m additional debt, used to fund the redemption of the minority unit holders in The Mall, has been hedged by way of an interest rate cap with a strike rate of 2.25%.
At the turn of this month, on 2 December, Capital & Regional completed its acquisition of 100% of the Mall Fund units, which began in July with the purchase of Aviva Investors’ 52.04% stake and a 10.52% stake owned by Karoo for £177.2m and £35.8m, respectively.
Capital & Regional financed the purchase of the Mall Fund units it did not already own with £158m net proceeds from the issuance of 351.1m new ordinary shares and a two-tranche £50m Lloyds Banking Group bridge revolving credit facility.
The Mall portfolio – comprised of six shopping centres in Blackburn, Camberley, Luton, Maidstone, Walthamstow and Wood Green – was last valued at £723m, as at 30 September 2014, which reflects an LTV of 52.5%, while the LTV of the Zephyrus bond is 27.2%.
Morgan Stanley is expected to further sell down the enlarged £146.7m floating rate tranche, whether structured again in an A-B split it is unclear.
At the time of the refinancing in June, Capital & Regional said that the initial margin on all elements of the facility is set at 1.9%, but the margin is dependent upon the LTV.
The margin would increase by 25 bps if the LTV were to exceed 60%. However, it would fall by 15 bps if the LTV were to reduce to 45%.
In its interim results back on 13 November, Capital & Regional said: “We are now able to push ahead with our plans to restructure the Fund and progress the asset management initiatives we have identified and started to roll out across our portfolio.”
Capital & Regional has defined a £60m capex investment programme for the Mall Fund over the next five years including refurbishment and extensions across the Walthamstow, Maidstone, Wood Green and Luton shopping centres.
Morgan Stanley and Capital & Regional declined to comment.