NEW YORK, Nov 14 (IFR) - CMBS investors were expecting
Hilton Worldwide to begin marketing a US$3.5bn CMBS via five
investment banks on Thursday, representing the largest
commercial-mortgage bond offering since the financial crisis,
according to buy-side sources.
The CMBS is a key part of a diverse US$13.425bn
debt-financing package of the hotel chain, sponsored by
Blackstone, as it sets the stage for an upcoming IPO. According
to Reuters, the IPO is slated for the week of December 2.
The Blackstone Group acquired Hilton in October 2007 for
US$26.3bn, taking it private.
JP Morgan is the structuring lead underwriter of the CMBS,
while Deutsche Bank is a co-lead manager. Bank of America,
Goldman Sachs and Morgan Stanley are co-managers and joint
In late September, Hilton priced a US$10.1bn bank-loan and
high-yield bond package that met with very strong investor
demand and was well oversubscribed.
Today's CMBS, which is expected to close by the end of next
week, is the last component of the debt package, which was
assembled to refinance Hilton's existing debt.
Despite its size, the deal is expected to be absorbed fairly
easily into the CMBS market, which is slated to hit a
post-crisis volume record this year of close to US$80bn.
"It appears that the arrangers have found a reasonable
window of opportunity here now that rate volatility has eroded
from earlier in the year, and Fed tapering should be deferred,"
said Christopher Sullivan, chief investment officer of the
United Nations Federal Credit Union.
Moreover, "investor interest in rather traditional,
transparent CMBS structures supported by quality loans and
offered at competitive spread to other credit classes has not
diminished," Sullivan added.
Blackstone originally intended to finance its LBO of Hilton
through CMBS in 2008 via a US$8.4bn deal, but the offering fell
apart when lead manager Bear Stearns went under and was acquired
by JP Morgan in March of that year.
The original 2008 offering was viewed by many on the buyside
as risky, offbeat debt, as it contained a good portion of
non-real estate collateral from the hotel chain, such as
timeshare and franchise assets.
The CMBS is now being resurrected, albeit in a diminished,
safer form. It will be backed by 23 "trophy" Hilton hotel
properties, including properties in Hawaii, New York, and San
Francisco, according to a pre-sale report from Morningstar. It
will be a mix of fixed- and floating-rate debt, according to an
investor update sent out yesterday by the lead-underwriting
"The underwriting is fine, and overall the company is doing
very well, but we actually preferred the existing [2008 CMBS]
deal, where all the collateral was in one place, rather than the
optimized capital structure with different bonds in all sorts of
different markets," said a senior CMBS investor at one of the
largest US asset managers.
Having all the collateral in one place in the first
iteration of the Hilton CMBS allowed for a more efficient
restructuring in 2010, the investor said, because there was only
one set of creditors. Moreover, the borrower could not sell
other assets, recoup equity, or move collateral around to
protect itself, meaning creditors were able to preserve most of
JP Morgan declined comment on the deal.
According to investors, the offering will be broken up into
a US$875m floating-rate slice and a US$2.625bn fixed-rate slice.
The floating-rate portion will have a two-year maturity and
three one-year extension options, according to investors. The
fixed-rate slice will have a five-year maturity.
The deal will have ratings from Moody's, S&P, and
Morningstar, with the senior tranche receiving Triple A ratings.
"Although it is a sizeable single offering, the deal should
be absorbable or distributed without too much difficulty,
especially as it might have a somewhat broader appeal than the
usual single-asset offering," UNFCU's Sullivan said.