Barclays issues and retains £2.43bn UK CMBS

Barclays has securitised £2.43 billion of granular UK property loans to free up capital, with £1.82 billion rated triple AAA.

Barclays declined to comment on the deal, Griffon Funding, but it is understood the issue is for treasury management purposes and will be substantially held by the bank rather than sold in the market.

CMBS issuance by banks for their own capital management have been few and far between since the period after the financial crisis when securistisation was used by some lenders to obtain repo finance from the European Central Bank.

Last year Credit Suisse ended up retaining the £185 million Magni Finance CMBS after it hit the market at the wrong time and didn’t sell. The deal, secured on UK properties owned by Varde, was refinanced in May this year with Starwood Capital and Starwood European Real Estate Finance.

Berlin-based Scope Ratings and Moody’s rated Griffon. The true sale deal comprises four tranches which were rated by both agencies, while Scope also rated a fifth, £60.7 million  B2 tranche single B+.  The main tranches are:

£1822.3M Class A1 Loan Debentures due 2028, Definitive Rating Assigned Aaa (sf); £328M Class A2 Loan Debentures due 2028, Definitive Rating Assigned Aa3 (sf); £133.6M Class A3 Loan Debentures due 2028, Definitive Rating Assigned Baa3 (sf); £85M Class B1 Loan Notes due 2028, Definitive Rating Assigned Ba3 (sf).

There are also two unrated, interest-only strips, one paying excess spread and ranked ahead of all except the AAA tranche, and an unrated subordinated Z class.

The underlying portfolio comprises one fixed-rate and 57 floating rate loans originated by Barclays between 2010 and 2016, secured on 1,516 properties. There are three large loans of about £140-£150 million each which account for a total 18.9 percent of the collateral.

The majority by value, 54 percent, are offices in Greater London, including a high concentration of serviced offices, with a further 14.3 percent in the south east, 10.1 percent in the north west and the remainder spread across the UK. The portfolio is 33.4 percent offices, 26.5 percent retail, 17.5 percent industrial, 6.8 percent residential and 5.2 percent hotel.

Commenting on the portfolio, Scope said: “The transaction benefits from significantly better asset pool diversification than traditional CMBS, which are typically exposed to a much smaller number of loans.” There are over 12,000 leases to around 7,000 tenants in Griffon.

The weighted average margin on the loans is 1.9 percent and the average loan to value ratio is 45.5 percent with strong 4.3 times interest cover.

Moody’s said “challenges” included non-standard features such as syndicated loans, revolving facilities and loans secured by operating assets.

The European CMBS market has been very quiet for the last 12 months since capital markets volatility hit pricing. Bank of America Merrill Lynch has sold two deals this year, Taurus 2016-1 DEU and Taurus 2016-2 DEU, both securitisations of single loans to borrowers (Blackstone, and Dream REIT) secured on German assets.

In the first, sold in March, the A class priced at 130bps,  with the A class in the second, in May, selling at 128 bps, both over 3-month Euribor.