New securitisation issue may offer a GRAND debt solution


Competitively priced CMBS could help pay off €3bn of debt from earlier issue, writes Alex Catalano


With Deutsche Annington reportedly on track for flotation this year, will it use CMBS to refinance some of the €3bn in its existing GRAND CMBS? Bank of America Merrill Lynch says a new five-year CMBS with equal leverage to GRAND (60%) could be priced at a blended margin of 179 basis points.

This is competitive with the margins of around 200bps German pfandbrief lenders charge on five-year loans at 60% loan-to- value ratios. Meanwhile, GRAND CMBS notes are pricing at a blended discount margin of 191bps.

Having restructured the securitisation and cut the debt to €3.8bn in 2012, Deutsche 3.0 Annington (DAIG) is committed to repaying 2.5 €1bn this year, €700m next year, €650m 2.0 each in 2015 and 2016, and the rest in 2017.


Apr 2013, p19, i1It has already fulfilled a big chunk of its 2013 target; in January it arranged €785m of debt, €715m of which will help pay off GRAND, and expects 2013 asset sales to generate “substantial repayment”.

Most of this new finance, €656m, came from Berlin Hyp, with €130m from two other lenders, thought to be pension funds. Parent Landesbank Berlin is positioning Berlin Hyp as the group’s specialist commercial real estate lender for German savings banks, focused on big deals in Germany and a handful of other core European markets.

It is preparing to offer its affiliated savings banks participation in the DAIG loan, in the form of a promissory note backed by 24,000 homes in the Ruhr, as well as in and around Cologne, Munich and Augsburg (see panel).

Restructuring the CMBS and reducing leverage was a necessary precursor to the company’s initial public offering. JPMorgan and Morgan Stanley are managing the IPO, which may offer 30-40% of the firm’s shares.

German REIT and property company share prices have risen 19% over the past year; in January, German apartment landlord LEG Immobilien raised about €1.3bn in an IPO. DAIG’s portfolio, valued at €9.9bn in 2011, has 210,000 flats, mainly in west Germany.

Although official data shows that German house prices have been flat since 2000, recent Morgan Stanley research says this is based on owner-occupier deals only, while prices have risen for larger multi-family residential portfolios. It estimates that condominium prices have doubled since 2000 and are now back to 2007 levels.

Berlin Hyp adds real estate ingredient to schuldschein recipe

The ‘IMMO-Schuldschein’ promisory note planned for Deutsche Annington’s debt will be Berlin Hyp’s second issue; it pioneered the instrument earlier this year with a €90m issue for German real estate company GSW Immobilien.

Schuldschein loans are bilateral loan agreements sold to institutional investors – an alternative to bonds that is unique to Germany. German Landesbanks use schuldschein to syndicate larger corporate loans to affiliated savings banks, while German public bodies are also large issuers.

Berlin Hyp’s schuldschein is a combination of traditional promissory note and secured real estate debt, providing investors with a real-asset debt alternative to government bonds. Germany has more than 400 small, independent savings banks that focus on local markets, and Berlin Hyp says its new instrument allows them to participate in big real estate financings outside their area.

The one it issued for GSW is secured by a preferential mortgage on a Berlin-based residential portfolio and has a term of around four years. It was heavily oversubscribed, leading Berlin Hyp to increase the issue size from €70m to €90m; the bank retains a 50%-plus stake in the loan. The issue was taken up by 26 savings banks. “The real estate borrower’s note that we created as an attractive and secure investment opportunity for savings banks will become increasingly important in 2013,” says Berlin Hyp.

Germany’s private-sector schuldschein market is estimated to be worth €13bn and growing. As well as German corporations, well-known foreign ones, such as Sainsbury’s, have used it in the past few years. Unlike bonds, the documentation is simple and short, at around 15 pages for vanilla ones, but covered by Germany’s legal Civil Code, making issuance quicker and less costly.

As loan agreements, schuldschein are unlisted and unregistered, but can be traded over the counter, though investors typically buy them to hold. The loan notes’ terms and conditions can be tailored to suit investors, with maturities ranging from three months to 30 years, and fixed or floating coupons, the latter based on three- or six-month Euribor.

They can also be structured; for example, with coupons that are inflation-linked or step up, and tranched, although more complicated versions will require more documentation.

Their accounting and regulatory treatment is also a big plus. Plain vanilla schuldschein do not have to be marked to market but are held at amortised cost on balance sheets, so book losses don’t need to be reported in the investor’s profit and loss account. And – importantly – the European Central Bank has accepted them as collateral since 2007.