CMBS market gains traction with UK logistics finance deal

BAML and Morgan Stanley launch €338m loan securitisation in a transaction sponsored by Blackstone – the seventh this year in the resurgent European securitisation market.

Bank of America Merrill Lynch and Morgan Stanley are planning the £299.5 million (€337.7 million) securitisation of a loan backed by a portfolio of UK logistics properties, in the seventh European CMBS transaction to be launched this year.

The deal is sponsored by Blackstone and is secured against a single £315.3 million loan secured by 59 urban logistics properties. It follows swiftly on the heels of another logistics CMBS deal – Libra (ELOC 31) DAC – launched this month by Morgan Stanley, which securitised the €282.5 million senior loan refinancing of a portfolio of assets in the Netherlands and Germany.

The BAMS CMBS 2018-1 DAC securitisation will be sold across five tranches, with the issuer retaining a £200,000 X-note in addition. The £150.9 million ‘A’ tranche is provisionally rated AAA by DBRS, while the £31.9 million ‘B’ tranche and the £26.2 million ‘C’ tranche are rated AA (low) and A (low) respectively. The £41.3 million ‘D’ tranche is rated BBB (low), and the £49.2 million ‘E’ tranche has a BB (low) rating.

The securitised loan financed the acquisition, in two off-market deals, of a portfolio of urban logistic and multi-let properties mostly located along the M6 motorway between Birmingham and Manchester. The facility, reflecting a 67.5 percent loan-to-value ratio, carries a floating interest rate equal to 1.765 percent over three-month Euribor. The loan has a term of two years, including the option to extend the loan term by three one-year periods.

The portfolio, acquired in February, is a further addition to Blackstone and M7’s last mile logistics joint venture platform, debt against which was also securitised in a £347.9 million deal in November last year. Taurus 2017-2 UK DAC, issued by Bank of America Merrill Lynch, was sold across five tranches, with its highest-rated £164.48 million ‘A’ tranche priced at 85 basis points over three-month Libor.

The assets of the latest deal are “a good addition” to those of Taurus 2017-2 UK DAC, DBRS said in its rating report.

“The dominant UK industrial markets have continued to perform well, with prime asset returns at 4.50 percent in London and between 5 percent and 6 percent in the rest of the country,” said rating agency Fitch in a pre-sale report. “Investor sentiment has remained strong in the last 12 months, with prime yields holding firm, and in some markets compressing by a further 25bps to 50bps,” it added.

Despite the Brexit vote, with a subsequent depreciation of the pound and inflation predicted to increase, the overall UK logistics and industrial sector maintains “strong market fundamentals and a positive outlook”, DBRS noted in its pre-sale report. There has been increasing demand for the last-mile logistics property type, in particular, fuelled by the evolution of e-commerce and growth of same-day delivery services, the rating agency noted.