Westfield delays Stratford CMBS due to regulation confusion

The £750m proposed agency CMBS to refinance Westfield’s Stratford City shopping centre in London has been pulled amidst uncertainty over ‘skin-in-the-game’ regulations.

Westfield, advised by its banking partners Deutsche Bank and Crédit Agricole, had decided not to retain 5% of the notes, the so-called ‘skin-in-the-game’ designed to regulate arranging banks and align their interests with investors. The 5% retention is normally a requirement under the European Commission’s Capital Requirement Directive (CRD), which came fully into effect at the start of the year.

Westfield’s decision was made because the deal was not considered to have come under the official definition of a CMBS under the directive as the deal had only a single tranche as opposed to multiple tranches, as per the CRD’s definition.

However, some prospective bond investors had raised funds or had compliance regulations that had a blanket rule that any CMBS must have a 5% retention by the sponsor.

As a result Westfield have pulled the deal. Some of those prospective investors are now in discussions to amend the regulations and legislation around their funds that would facilitate their investment and the deal could re-emerge in the next couple of months.  Alternatively, Westfield may consider simply retaining a 5% stake.

Yesterday the AAA notes were priced at 87-90 basis points, meaning it was to be the lowest priced of any European CMBS since the global financial crisis.  The 1.9m sq ft centre, which is valued at £1.95bn and jointly owned by Westfield, APG and the Canada Pension Plan Investment Board, currently has a £550m loan held against it. The five-year loan was put in place in 2011 and was arranged by Crédit Agricole CIB, HSBC and Eurohypo, who co-ordinated a syndication with Aareal Bank and AXA Real Estate, Bayern LB, MetLife, Credit Foncier, Deutsche Pfandbriefbank and Santander.