European CMBS turns a corner with Taurus

Fri May 10, 2013 12:11pm EDT

Related Topics

* Public deal builds confidence that market is back for good

* German multifamily to lead with second Gagfah deal coming

* 105bp print anchors secondary CMBS tighter

By Owen Sanderson

LONDON, May 10 (IFR) - The broad syndication and deep demand for Taurus 2013 (GMF 1), the first European CMBS of the year, signals that CMBS may be ready to return as a mainstream capital markets product, lifting spirits in the once-moribund market.

Since the crisis, CMBS has had several false starts. The market watched Deutsche Bank's placement of Chiswick Park with intense interest, and it was the talk of the conference at Global ABS 2011. Other issuers were rumoured to be testing the market on the back of Deutsche's success.

But the credit markets sputtered and died in late 2011, as did any hope of a solid revival in CMBS.

Deutsche placed two more CMBS deals through 2012, but one of those, the German multifamily deal Florentia CMBS, was sold mainly to JPMorgan - signalling confidence from the US bank in European residential risk, but saying nothing about appetite for a return to regular new issue CMBS.

Taurus, however, has been largely public from the beginning.

Bank of America said that it intended to use a CMBS exit when it first provided a loan to borrower Gagfah (owned by Fortress Investment Group) in February. The loan refinanced the WOBA loan, jointly securitised in Windermere IX and Deco 14 Pan Europe 5.

Gagfah has also been public about its intention to access the CMBS market again, this time through an agency structure. It mandated Goldman Sachs and UniCredit last November to refinance the German Residential Funding CMBS, with a deal expected some time in the second quarter.

PUBLIC BUT PROTECTED

Taurus lead managers BAML and HSBC sold the deal to 40 accounts up and down the capital stack, many of which were investors looking across the structured finance universe, rather than commercial real estate accounts choosing to take exposure in bond format.

By geography, these were split 62% UK, 11% Netherlands, 10% Nordic, 2% Switzerland, 2% Germany, 2% Italy, 1% France, and 9% non-Europe. By type the split was 44% asset managers, 26% insurance/pension funds, 23% banks, and 7% central banks/ supranationals.

The total book size across the tranches was EUR2.6bn, based on figures provided by the leads, which broke down as EUR1.03bn for the EUR710m class A, EUR286m for the EUR130m class B, EUR654m for the EUR120m class C, and EUR641.25m for the EUR95m class D.

Despite this large and broad book, like any prudent syndicate reopening a market, there were orders in place to anchor the deal.

Class E was preplaced from the beginning, while other tranches included protected orders from the premarketing process, but there was still a large free float and flexibility on price.

According to IFR calculations based on figures from the leads, EUR319.5m of the class A, EUR39m of the class B, EUR28m of class C, and EUR17.6m of class D were available in public syndication.

The deal came well inside where leads began floating it with Tuesday's IPTs - 105bp from 110bp area on the A notes, 150bp from 155bp area on the B, 200bp from 215bp area on the C, 275bp from 300bp area on the D, and 350bp from 375bp area on the Class E - and tightened further on the secondary bid side.

On Thursday morning, the Class As were 100.10 bid, the Bs 100.25, Cs and Ds 100.5, and class E 100.75.

During the marketing process, arranger BAML tweaked the structure of the DAC note, which is a spread capture instrument similar to a Class X in a pre-crisis deal, though structured to switch off at expected maturity. It split the original 5-year DAC note into a 3-year note with prepayment protection, and the last 2-year portion subordinated in the structure.

FUTURE OF THE MARKET

While Taurus is a super-clean deal, backed by German residential assets in a growing town (Dresden) and with a low LTV, it has still buoyed the market tone right across the CMBS universe.

There is no question, as there was over Chiswick Park, whether the asset-liability arbitrage works. The loans backing the CMBS pay 240bp over swaps for the fixed rate portion and 225bp over Euribor for the floating portion, while the CMBS liabilities cost a blended 140.6bp.

Executing a CMBS inside where lower quality Dutch programmes print plants a flag in spread terms, and looks set to tighten much of the rest of the market. The level for Taurus was 15-20bp inside where GRAND, the CMBS market benchmark, was seen in senior, and 10bp-15bp inside down the rest of the capital stack.

Senior GRAND is lagging a little because the giant CMBS is gradually being refinanced, and nobody wants to buy senior notes much above par - particularly if the new issue CMBS market is ready to deliver large volumes for German multifamily assets, therefore speeding up the GRAND refinancing.

Market participants have rumoured six deals in the pipeline, of which one was Taurus, another of which is Gagfah's GRF refinancing, and a third is another Chiswick Park CMBS.

Other deals already mandated are likely to be single asset or German multifamily deals at first, but some real estate bankers are confident multi-loan deals can be revived, perhaps as soon as the end of the year. EUR3bn-EUR4bn of CMBS supply could come to market this year, with as much as EUR10bn in 2014, according to one real estate banker. (Reporting By Owen Sanderson, editing by Julian Baker and Anil Mayre)

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