- A €141.6m AAA/Aaa 30.1 4.57 27.4 3mE+130 3mE+130 100.00
- B €38.2m AA(hi)/Aa3 38.3 4.57 21.6 3mE+240 3mE+240 100.00
- C €25.5m AA(lo)/A3 43.7 4.57 18.9 3mE+320 3mE+320 100.00
- D €41.8m BBB/Baa3 52.6 4.57 15.7 3mE+400 3mE+400 100.00
- E €52.6m BB/Ba3 63.8 4.57 13.0 3mE+550 3mE+425 94.9748
- F €17.35m BB(lo)/B2 67.5 4.57 12.3 3mE+675 3mE+500 93.1646
BAML priced the class As through Ds last Wednesday at a coverage ratio of between 1.9 to 1.4 times. The class Es and Fs were sold at a 5.0% and a 6.8% discount, respectively.
Over the total transaction, this equates to a blended price for the notes of 98.8%, or a 1.2% discount, which equates to BAML crystallising a loss of €3.8m on the principal balance of the securitised loan.
The discounted junior class sales reflects the difference between the market price for bonds and the available cash flow in the transaction. The nominal coupon on the class Es and Fs notes – at 425 and 500 basis points, respectively – is enhanced by the proportional discount the notes were sold at, assuming noteholders are repaid at par.
The greater the discount and the quicker the sponsor’s debt repayment, the higher the effective return for such noteholders.
Assuming Blackstone repays the outstanding loan balance at the maturity of the CMBS, the effective spread on the class Es and Fs notes would be 550 and 675 basis points, respectively.
The blended nominal coupon of TAURUS 2016-1 DEU is 264 bps, while the discounted margin – which is the effective margin which includes the price to par increase – is 294 bps.
CoStar News understands that the loan margin on which BAML extended the original €333.7m loan last September was 275 bps.
However, the overall discounted bond sell-off in TAURUS 2016-1 DEU is estimated to have been offset by the net warehousing profit of the loan, over the approximate six month period, plus loan arrangement fees.
The level of profit is difficult to determine as it would be the net of many items – including legal fees, rating agency fees, servicing fees as well as BAML’s funding costs of the original €333.7m loan plus capital charges, that is the equity the investment bank had to set aside against the loan. The best estimate is a very modest profit.
Next up for BAML is the potential securitisation of a €575m five-year senior loan extended to Logicor, Blackstone’s European logistics platform, to refinance Certeum’s €920m logistics property portfolio. The full story can be viewed here.
For the broader CMBS market, the outlook for new transactions remains relatively muted as macro-economic conditionhave increased asset backed securities (ABS) spreads to two-year highs.
This is set against strong competition among senior lenders, both banks and non-banks. This continued strong supply of senior debt continues sustain a low cost of debt environment which narrows the window for profitable capital market executions.
Furthermore, in the UK, the impending referendum on the UK’s membership of the European Union – scheduled for 23 June – will almost certainly stifle any investor appetite for UK CMBS paper this side of a referendum, and for considerably longer in the event of a Brexit.
In all probability, as the referendum approaches, activity in the commercial property investment market will slow materially as investors wait to see the result before committing to large sales or purchases.
Should the referendum result in a decision to remain, it is likely that the property market will normalise relatively quickly. If however the decision is to leave the EU, then there could be a protracted period of uncertainty as the details of both Britain’s withdrawal and the aftermath are worked out.
This may well result in turbulence in the financial markets and the property market for a period.