Favourable reception for refinancing proposal for Europe’s largest securitisation

A proposed refinancing unveiled today of the €4.46bn GRAND CMBS looks attractive enough to ward off any potential challenge by subordinated noteholders.

One junior noteholder called the proposal for refinancing the German multi-family portfolio “promising” even though the 165bps blended margin offered across the classes is lower than many had expected. One analyst last month suggested the offer might be up to 270bps.

Secondary market prices are also up today, a positive sign, with GRND 1 A bonds trading at 97.00/97.25 5X5.

Junior noteholders had fought to stay informed during a year-long discussion by the borrower, Deutsche Annington, with an invited ad hoc committee of Class As only, representing 37% of their class.

Subordinated classes had been prepared to challenge the scheme of arrangement at the heart of the refinancing proposal through the Irish legal system if they didn’t feel fairly treated under the borrower’s proposal. One of the main sources of relief is the fact that the proposal intends to keep payment on a pro-rata rather than a sequential basis.

The proposal will see Deutsche Annington’s parent company, Terra Firma, inject €504m of equity and the notes extended by five years. This will reduce the outstanding securitized debt to €3.8bn and the LTV to 59.7%, based on an updated valuation of €8.44bn in January 2012.

Repayment of €1bn will be made within the first year; €700m in the second year; €650m in years three and four; and the remainder in year five. The existing loan matures in July 2013.

From the point of view of advisors to the ad hoc committee, the proposal is a good deal because it allows the company to continue collecting rents and progress towards an IPO, while noteholders get “better economics, faster payback, and more certainty” one said. There is also scope for the margin to increase by 25bps if a year-one amortization target of €1bn is not achieved on time. Plus there is a consent fee of up to 20bps.

According to boutique bank Chalkhill, Class As would receive an estimated margin of 140.7bps.

One noteholder said that although it looked like a deal “that has been designed by the Class As to favour them” the non-binding heads of terms that have been outlined for the proposed refinancing are “a good starting point”.

October 5 is the next deadline, when a court hearing will be held at which bondholders will vote on the proposal. By value, 75% of them must agree, as well as a majority by number. Tomorrow, terms of the proposal will be discussed on a call hosted by Deutsche Annington.

Without objections, the proposed refinancing could be approved at a hearing scheduled for 9 November.

Lauren Parr, news editor