Private Irish property company Alburn Investments has executed a ground-breaking securitisation of its £250m UK office portfolio in a bid to reduce its interest costs.
Investment bank Rothschild has issued Commercial Mortgage Backed Securities against Alburn’s 44-strong secondary office buildings, slashing Alburn’s annual margin costs to around 50 basis points.
This compares extremely well to standard CBMS Conduit and commercial bank funding rates of around 90 basis points that have been achieved on similarly geared secondary portfolios like Alburn’s.
The novel securitisation is an evolution on earlier CMBS issuances because it provides the flexibility for further sales and acquisitions, has no repayment fees and offers the ability to raise significant further funding within the existing structure.
The deal was the sixth in the bank’s real estate capital programme and takes its total CMBS issuance to date to in excess of £2.5bn. Rothschild acted as sole arranger and joint lead manager while Merrill Lynch was appointed to act as joint lead manager and book-runner on the transaction.
The 6.6-year £200m loan is split between a £188m senior loan and £12m junior loan. Rothschild provided the senior loan by issuing floating rate notes rated by Fitch and Standard & Poor’s, in addition to £150m of reserve notes for future drawings.
Demand for the notes was exceptionally strong, especially from investors in the UK, Ireland and Germany. Pricing over LIBOR achieved for the various classes of notes was aggressive, especially considering the small size and secondary nature of Alburn’s portfolio.