Goldman Sachs closes Reitaly Finance CMBS through discounted bond sell down

Goldman Sachs priced the delayed and partly restructured securitisation of a €181.95m loan to Apollo Global Management on Friday through the sale of five of the six noteholder classes at a discount to par.

Reitaly Finance CMBS, which is secured by 25 Italian retail assets valued at €292.3m, was priced as follows:

Class   Size (€m)      Margin           Price               Margin (all-in)

  • A1       70.00            215.0             100.00                 215.0
  • A2       39.30            255.0             99.20                  274.0
  • B         33.30            315.0              98.65                  347.1
  • C         12.40            437.0              99.50                  448.9
  • D         17.70            470.0              98.00                  517.6
  • E         9.25               545.0              97.25                 610.5

                181.95             298.7              99.21                  317.4

Goldman Sachs sold the A2 class, with the most senior noteholder class restructured after the deal was pulled in July, and all subsequent notes at a varying discount (see above), reducing the excess spread by 18.8 basis points to 13.6 bps, excluding costs.

This 13.6 bps excess spread is based on the difference between nominal blended coupon – which would have been 298.7 bps – and the real margin after the discounted bonds were factored into the actual margin received by investors, which was 317.4 bps.

The original €191.5m five-year senior loan underwritten by Goldman to Apollo was priced at 331 bps over three-month LIBOR, according to a Fitch Ratings pre-sale report.

The remaining 13.6 bps excess spread skimmed from the original senior loan is before running costs, such as: the liquidity facility, rating agency costs, legals and loan servicing.  

Goldman effectively had to sell the majority of the bonds at a discount to match market demand for the risk which looks to have been underestimated by the investment bank.

The macro headwinds which no doubt worked against Goldman, in the case of the original June launched deal, was the return of uncertainty surrounding Greece and whether or not the country’s left-wing government would be able to push through austerity measures necessary to secure its last bailout.

More recently, there has been a general reduction in investors’ risk appetite, in part led by China’s stock market collapse, while there has also been an enduring competitiveness within lending markets which are forcing investment banks to be more competitive in pricing loans.

Goldman’s sale of the majority of the bonds below par effectively increases the real margin received by investors, at the cost of its own profit on the deal. The alternative would have been to hold the loan or the bonds on its balance sheet which, for an investment bank, would be subjected to high capital charges. 

This is the second time in a month Goldman has had to price junior bonds on a CMBS below par, after the £646m Logistics UK 2015 plc CMBS, a securitisation of a loan secured by a 42-strong UK logistics portfolio owned by Blackstone’s Logicor.

In this transaction, the three junior classes all priced below par while Goldman also had to renegotiate the senior margin on the loan – up 16bps to 220bps with the sponsor in exchange for a reduction in upfront fees, CoStar News understands.

The two deals are a reminder of how difficult it can be to correctly price loans for capital markets execution during periods of broader macro volatility.

Goldman’s Reitaly Finance CMBS loan was to an Italian-regulated real estate fund, which has Apollo European Principal Finance Fund II (99%) and AXA Real Estate Investment Managers (1%) as its two investors. 

It is secured by a portfolio of 25 assets subdivided into five sub-portfolios:

  • five large retail assets with exposure to a cinema operator (the Retail/Entertainment Portfolio);
  • five cash-and-carry assets (the Docks Portfolio);
  • three retail galleries anchored by supermarkets albeit not owned by the fund and outside of the security package (the Auchan Portfolio);
  • five retail boxes (the Conforama Portfolio); and
  • seven smaller retail units (the Other Retail Assets).

The Apollo-led fund acquired the of 25 retail and leisure assets from Olinda Fondo Shops, a listed real estate mutual fund managed by Prelios SGR, for a total consideration of c. €290m. The gross passing rent of €26.2m, the vacancy rate is 10.7 years and the weighted average unexpired lease term is 5.9 years.

Standard & Poor’s and Fitch Ratings are expected to rate the transaction, which is scheduled to mature in May 2020. The legal final maturity is seven years after, in May 2027. CBRE Loan Servicing has been appointed loan servicer.

The deal originally came to market at the start of June, please see here.

Goldman Sachs declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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