Holiday villages back £1bn issue to refinance debt set to mature in 2013.
Blackstone’s Centre Parcs has raised £1.02bn with a dual-class securitisation, backed by its holiday villages business and assets.
The proceeds will be used to refinance Centre Parc’s existing CMBS debt, which matures in October 2013. The issue was arranged by Royal Bank of Scotland, which worked on the deal for nine months.
“It was apparent that some kind of subordinated instrument was required,” said Kevin Connell, RBS managing director, European high-yield syndicate.
“We felt there could be higher demand for the tranche from the high-yield universe, but the structure could still attract CMBS investors, some of whom know the company because of its previous CMBS issuance.”
The CPUK Finance issue includes £330m of five-year, class A1 bonds paying 4.811%, 390 basis points above the benchmark gilt, and a £440m, class A2, 12-year tranche, paying 7.239%, a 465bps margin. Both tranches were provisionally rated BBB by Fitch and Standard & Poor’s.
An additional high-yielding, £280m, six-year subordinated class B, paying 11.625%, was provisionally rated BB+/B+ by Standard & Poor’s and Fitch.
“Given the underlying credit, which is extremely stable and performed like a regulated utility with high margins, a very stable, strong track record and a top management team – we felt that we would attract investment-grade buyers too, if they got comfortable with the credit,” said Connell.
Strong demand for all tranches meant that the issue was oversubscribed. The capital raised will repay existing debt, plus the estimated £162m costs of breaking long- dated swaps that were embedded in the original CMBS.
Blackstone first securitised the four villages at the height of the market in June 2007, in a £746m CMBS with five tranches, paying between 20 and 88bps over LIBOR, and containing £750m of senior debt plus a £282m subordinated loan.
This debt was rescheduled to mature last October, but Blackstone negotiated a two-year extension, which increased the margins to 298bps on the A loan and 350bps on the B loan. At the time, CBRE valued the portfolio at £1.37bn; the firm’s latest valuation is £1.4bn.
B-note bonuses woo high-yield players
To make the Centre Parcs CMBS more attractive to high-yield investors, the B notes have been given covenants that would not normally be extended to this subordinated tranche.
For example, confirmation from the rating agency is required for additional indebtedness and a debt maintenance test is required annually at group level.
The B – but not the A – noteholders also get a pledge that Centre Parcs’ owner will repair any breach in the 1:3.5 debt service cover ratio, either by putting in equity to repay debt and meet the ratio, or letting the business go.
“We felt that the covenant and security packages on the class A and class B notes offered strong protection on top of the historically stable underlying credit,” said RBS’s Kevin Connell.