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Deutsche Bank prices €403.81m Italian CMBS

By Paul Norman - Tuesday, February 13, 2018 15:27

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Deutsche Bank has priced Pietra Nera Uno S.R.L, a rare €403.81m European Agency CMBS securitised by four Blackstone Italian retail assets.

The capital structure is:

CLASS   SIZE(€M)  Rating(D/F)^   Margin   Iss.Px

A             210,000   [AA-/A+]           +115      100.00

B             60,000     [A-/A-]               +175      100.00

C             31,500     [BBB-/BBB-]     +245     100.00

D            41,000     [BB/BB-]           +465      100.00

E             41,100     [B+/B]                +675      99.75

Z             20,210     [NR/NR]            N/A        N/A

Total      403,810

The transaction is being rated by DBRS and Fitch with the settlement date 26 Feb 2018.

The blended margin for the A to E tranche is 232 bps.

It is understood that pricing for the top three tranches came in at the tight end of initial pricing guidance while the bottom tranches was wider than the initial pricing guidance demonstrating less robust appetite from investors for the junior tranches thanks in part to the lack of covenant and the elevated 71% loan to value.

Blackstone chose an Agency CMBS no doubt after taking the view that it had enough collateral to take the risk on pricing and benefit from the spread saving.

The blended margin on the A to E tranche suggests an all in cost at likely less than 250 bps, a significant improvement on the likely cost if a bank made the loans.

Pietra Nera Uno S.R.L. is a securitisation of three senior commercial real estate loans and two pari passu-ranking capital expenditure facilities advanced by issuer Pietra Nera Uno S.R.L. to three Italian borrowers ultimately owned by Blackstone.

They are:

Moma Fund, a regulated Italian real estate fund (the borrower under the Fashion District Loan)

Multi Veste Italy 4 S.R.L. (the borrower under the Palermo Loan) and Valdichiana Propco S.R.L. (the borrower under the Valdichiana Loan). 

The aggregate initial balance of the securitised loans is €403,810,000, including €9m and €6.5m pari passu-ranking capex facilities related to the Palermo Loan and the Fashion District Loan, respectively. Each loan has a two-year term with three one-year extension options, subject to certain conditions.

Earlier this month, DBRS Ratings Limited (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due May 2030 issued by Pietra Nera Uno S.R.L. (the Issuer):

Class A Notes rated AA (low) (sf)

Class B Notes rated A (low) (sf)

Class C Notes rated BBB (low) (sf)

Class D Notes rated BB (sf)

Class E Notes rated B (high) (sf)

All trends are Stable.

The Fashion District Loan and the Valdichiana Loan will refinance loans securitised Taurus 2015-1 IT S.r.l. and Moda 2014 S.r.l, respectively.

Each loan is limited in recourse to the borrower group and the underlying properties, with no additional recourse to the sponsor. Also, there is no cross-collateralisation, and the assets and guarantees securing the loans will only secure or guarantee the liabilities arising under the respective facility agreement.

Each of the loan bears interest at a floating rate equal to three-month EURIBOR (subject to zero floor) plus a margin that is a function of the weighted-average (WA) of the aggregate interest amounts payable on the Notes. As such, there is no excess spread in the transaction, while ongoing costs and expenses incurred by the Issuer will be paid directly by the borrowers.

To maintain compliance with applicable regulatory requirements, Blackstone, acting through its group company BRE Europe 7 NQ S.a.r.l., intends to retain an ongoing material economic interest of not less than 5% by subscribing an unrated and junior-ranking €20.2m Class Z.

The collateral securing the loans comprises four Italian retail assets: three regional outlets and one dominant shopping centre, located respectively in Mantua (north of Italy), Valdichiana (centre of Italy), Molfetta and Palermo (south of Italy).

The portfolio has a WA occupancy rate of over 95%. The rental income is contributed by over 360 tenants, predominantly well-known international retailers, with the largest tenant (UCI Cinemas) contributing 4% to the total gross rental income. The top ten tenants generate 18% of the total rent.

In DBRS’s view and based on the valuations instructed by the arranger, the loans (including the capex facilities) represent medium leverage financing with loan-to-value (LTV) ratios of 71.2% for Fashion District, 72.6% for Palermo and 67.2% for Valdichiana (the LTV figures are net of the 5%, or €20.2m, material economic interest retained in the transaction by the Sponsor). The relatively high DBRS LTV is mitigated by the debt yield, as the collateral currently generates a Net Operating Income (NOI) of approximately €36.4m, translating into a day-one senior debt yield of 9.1%.

Each loan has a two-year term with three one-year extension options.

The DBRS net cash flow (NCF) for the entire portfolio is EUR 30.0 million, which represents a 17.5% discount to the sponsor’s NOI.

DBRS applied a blended capitalization rate of 7.1% to the aggregate NCF to arrive at a DBRS stressed value of GBP 422.2 million, which represents a 22% haircut to the market value provided by CBRE’s valuation completed in September 2017. The DBRS LTV of the transaction is 95.6%.

The final legal maturity of the Notes is in May 2030, seven years after the third one-year maturity extension option negotiated under the loans agreements. 

CMBS transactions have been few and far between in Europe in recent times.

In December of last year Bank of America Merrill Lynch (BAML) placed a €143.8m CMBS secured by a portfolio of 23 Italian retail properties owned by Apollo Global Management and AXA Investment Managers, which was valued in the summer at €361.67m.

It also priced its Taurus 2017-2 UK securitisation, the only UK sterling CMBS of 2017 that month.

The £350m Taurus 2017-2 UK is a securitisation of one floating-rate senior commercial real estate loan, which was advanced by Bank of America Merrill Lynch International Limited (BAML) to finance the acquisition of 127 urban logistic and multi-let industrial properties in the UK by Blackstone Real Estate Partners from Brockton Capital in an off-market deal for circa £560m. 

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