Last week, Luxembourg-headquartered CPI Property Group said in its H1 results it had agreed a €635 million, three-year bridge loan with a consortium of banks. The loan has a clear purpose, according to chief financial officer David Greenbaum – to demonstrate the strength of the Frankfurt-listed company’s financial liquidity to credit rating agencies and bond investors.
In July, rating agency Moody’s affirmed the group’s Baa3 investment grade rating but revised its outlook from ‘stable’ to ‘negative’ – a change that came when the outlook for several real estate owners was changed amid volatile property market conditions. In a statement at the time, Greenbaum emphasised the importance to CPI’s business of maintaining investment grade ratings.
Speaking to Real Estate Capital Europe, Greenbaum explains that CPI – which was founded in the Czech Republic and focuses much of its investment in Central and Eastern Europe – is working to reduce its borrowings following two major corporate acquisitions in 2022 but adds that the €635 million loan was necessary to demonstrate liquidity.
“The feedback from the rating agencies and our investors over the summer was they would like us to eliminate any questions around liquidity,” says Greenbaum. “This new loan was really an exercise in managing ratings agency expectations and demonstrating we have everything we need in terms of access to capital.”
In January and April 2022, CPI sourced €3.75 billion of bridge finance, across two facilities, to part-fund its acquisitions of Austrian property firms IMMOFINANZ and S IMMO. It drew down €2.7 billion of the debt, which was initially due to mature in Q1 and Q2 2024 but was subsequently extended to Q1 and Q2 2025. By August, it had reduced that debt to €1 billion. The company plans to draw down the new loan in October to further pay down the debt – and replace it with longer-dated financing, due to mature in Q4 2026.
The new loan, which has a €1 billion accordion feature, was agreed with Santander, Société Générale, Komerční banka, Raiffeisen, SMBC, Barclays and Erste Bank.
“We have enough visibility on our liquidity in these two months to give us the comfort to draw €635 million and use cash and other resources to repay the existing bridge loans,” says Greenbaum. At the end of June, CPI’s total available liquidity stood at €2 billion, according to its results.
While taking on the new bridge loan has provided CPI with a maturity profile designed to satisfy its investors and rating agencies, it has exposed the company to higher priced debt. Pricing on the new facility was more than 300 basis points over Euribor – around 100bps higher than the previous bridge facilities.
“That seemed to us a reasonable concession to make for the extra year and a half of liquidity,” says Greenbaum. “Of course, the cost of debt is a significant factor for us, and we are conscious of our interest coverage ratio. But, right now, prioritising liquidity above all else meant we were willing to take on a longer-dated, more expensive bridge.”
Greenbaum is also confident the company will be able to repay the higher priced debt far earlier than its maturity date, as part of its overall deleveraging efforts. “Our plan is to repay the new bridge as soon as possible, ideally before the end of this year. We entered this new transaction simply to alleviate any potential fears of the rating agencies about liquidity.”
CPIPG’s focus is on debt repayments through asset sales, Greenbaum says. He argues this is possible in today’s market. “We’ve been able to make €657 million of disposals in H1. The press would have you believe nothing is trading, but that could not be further from the truth. Yes, volumes are down. But for assets with an identified investor base, such as hotels, or offices in some locations, there is demand.”
During H1, asset sales enabled CPI to reduce its net debt by more than €500 million, bringing its net loan-to-value down a percentage point from the end of 2022 to 49.9 percent. The company aims to have an overall LTV of between 45-49 percent by year-end.
As part of the drive to address its finances, in April, CPI repurchased €335 million of bonds due in 2026-28, and said in its results it intended to continue to repurchase bonds.
The financing market, Greenbaum comments, is “extremely challenging”. However, he believes CPIPG’s longstanding banking relationships enabled it to access the new bridge loan. He also pointed to the fact CPIPG has taken on more than €850 million in secured bank loans and senior unsecured debt in the first half of the year.
“We have benefited from the fact we have a diversified portfolio, but also the fact the CEE markets are not experiencing the same demographic and socioeconomic factors as some other markets. In CEE, commute times are short, and we don’t have overbuilding of real estate. So, when banks realise that they are more comfortable in providing loans either on an unsecured basis, or against the properties.”
In the past year, Greenbaum has not seen a notable change in loan structures in the CEE markets, although pricing has increased between 25bps and 100bps, depending on the asset and loan type.
Banks are also willing to refinance existing loans, he has found. “Banks like to back existing relationships. While some real estate companies stopped borrowing on the secured loan market last year and lost those relationships, we continued. We didn’t lose sight of the importance of bank financing.”
He adds: “Rolling over existing loans has not been an issue. In many cases, we are refinancing and upsizing at the same time.”