German residential giant uses unsecured debt to help pay off CMBS
Deutsche Annington has altered financial course, fully repaying its €3.1bn GRAND CMBS and substituting unsecured debt.
It is using a €2.5bn term loan, provided in June by JPMorgan and Morgan Stanley, to partially fund the repayment and has issued €1.3bn of unsecured corporate bonds to refinance the loan.
The €700m, three-year bonds have a 2.125% coupon and the €600m, six-year bonds 3.125%. Standard & Poor’s have given them a BBB rating.
“It’s a testament to how strongly the market has come back that there are now a variety of options available to refinance that amount of debt,” said Brookland Capital Partners director Gareck Wilson.
Peter Papadakos, senior analyst at Green Street Advisors, added: “It is interesting that Deutsche Annington is tapping the unsecured market. In Germany, property companies’ unsecured credit is trading at higher spreads than the secured credit.
“In other countries like the UK and France, unsecured debt is cheaper for REITs, especially larger ones. In Germany it is the opposite.
“Unsecured real estate debt in Germany is an immature market, so Deutsche Annington will source it more expensively than for secured.
“But it is diversifying its funding,” Papadakos noted. “At this point of the company’s life, I’m sympathetic to that strategy.”
Wilson added: “The GRAND repayment seems to have occurred more quickly than most people anticipated.”
GRAND was restructured only last year, which has “allowed for repayment of the debt over five years,” Wilson said.
But Papadakos was not surprised that GRAND had been repaid now, as “there is a dividend restriction clause in GRAND; if the free float of shares is under 20%, Deutsche Annington can’t pay a dividend”.
The company’s reduced IPO size means only 15.5% of shares are free-floating, so repaying GRAND frees the company.
Deutsche Annington will use €2.3bn of the €2.5bn JPMorgan/ Morgan Stanley loan to fund most of the GRAND repayment. The loan has two tranches: €1.5bn for 18 months and €1bn for 36 months.
The terms of the loan require the borrower to maintain a 60% loan-to-value ratio and interest rate coverage ranging from 1.4 to 2.0.
On-off IPO and fresh debt settles CMBS
The GRAND repayment follows Deutsche Annington’s rollercoaster ride to its initial public offering in July.
The original €1.1bn IPO was pulled at the last minute, due to weaker-than-expected investor demand at the targeted €18-21 price range.
The shares were marketed just as Federal Reserve chairman Ben Bernanke announced that the US might end quantitative easing by mid-2014, sparking global market turbulence.
A week later, Deutsche Annington relaunched its IPO in a scaled-down placement with institutional investors at €16.50 per share, raising €378m net.