CMBS resurgence continues with Sponda loan securitisation

Citi and Morgan Stanley have securitised debt written against a Finnish property platform.

Citi and Morgan Stanley have securitised a portion of the debt issued last December to finance Blackstone’s purchase of Finland’s Sponda property platform, with the AAA notes priced at 75 basis points.

A €540.87 million portion of the €590.9 million loan was securitised, accounting for 92 percent of the senior loan. The originators have retained €27.94 million – 5 percent of the securitised senior loan – in line with risk-retention requirements. In total, lenders provided €2.6 billion to Blackstone to fund its Sponda acquisition.

The CMBS deal – FROSN-2018 DAC – was priced across six tranches, including the €250.9 million ‘A1’ tranche, plus class X notes and reserved fund notes which fund the note share part of the liquidity reserve.

“Tranches were sold to more than 20 investors, and they were oversubscribed,” Mirco Iacobucci, vice-president, global structured finance at rating agency DBRS told Real Estate Capital.

The €42.5 million ‘A2’ tranche was priced at 85bps over Euribor, while the €23.2 million ‘B’ tranche was priced at 100bps and the €54 million ‘C’ and €84.9 million ‘D’ tranches were priced at 140bps and 220bps, respectively. The ‘E’ tranche was priced at 360bps.

After a quiet two years, the European CMBS market is gradually returning, with pricing becoming increasingly favourable to lenders. In February, the circa €404 million Pietra Nera Uno CMBS deal – which securitised a retail portfolio from Blackstone – had its highest-rated tranche of notes priced at 115bps, which suggests a pricing compression compared with the FROSN deal.

Last November, when Bank of America Merrill Lynch issued the £347.9 million (€389.3 million) Taurus 2017-2 UK DAC UK CMBS, secured against a portfolio of ‘last-mile’ logistics properties bought by Blackstone and M7 Real Estate, the £164.48 million ‘A’ tranche was rated AAA and priced at 85 basis points over three-month Libor.

“Spreads for CMBS deals have certainly tightened, so these deals make more sense at the moment,” Iacobucci said.

“In 2016 and 2017, the spread of commercial real estate loans was often too low compared with anticipated CMBS pricing, but this seems to have changed since late end of last year,” added Christian Aufsatz, managing director and head of European structured finance at DBRS.

Last year, Blackstone funded the acquisition of the Sponda platform in Finland with a €2.6 billion financing, in one of the cycle’s largest real estate lending deals. Citi, Morgan Stanley and Royal Bank of Canada provided senior debt across two loans, totalling around €1.6 billion, with each bank providing equal proportions. In the third loan, Citi and Morgan Stanley provided senior finance on a 50/50 basis. Goldman Sachs provided mezzanine finance in the deal.

Of the securitised portion of the financing, the senior facility carries a floating interest rate equal of 2.45 percent over three-month Euribor.

The underlying portfolio in the CMBS deal has a total value of €887.7 million and is composed of 63 commercial real estate assets located across Finland. The portfolio’s market value results in a 66.6 percent senior loan-to-value ratio. Office space represents 61.7 percent of the total lettable area of the portfolio, while retail space makes up 17.4 percent and other commercial assets the remaining 20 percent.

Blackstone’s sponsorship of the deal highlights the US private equity firm’s role as the borrower in most of the CMBS deals being brought to the European market, including Taurus 2017-2 UK DAC and Pietra Nera Uno.

“Blackstone is well known in the CMBS market and this could have helped to market [its most recent] deal,” Aufsatz noted.