The Leda Group, a privately-owned Australian property developer, will launch the country's first refinancing of a commercial mortgage backed securitization (CMBS) next week. Fittingly, the deal that is up for renewal - a A$215.2 million ($120.8 million) issue launched in December 1999 and due to mature on December 3 - was one of the first CMBS deals to hit the Aussie market, and the first by a private company rather than a listed property trust.
ANZ Investment Bank, which put together the first deal, continues in its role as lead manager. The bank earlier this week held roadshows in Brisbane, Melbourne and Sydney and will price the A$202.88 million refinancing on November 28.
Leda is securitizing incomes generated by two retail properties: the Tuggeranong Hypodome in Canberra and the Morayfield Shopping Centre in Brisbane. An independent assessment now values the two properties at $416 million, compared to $387 million when the first deal was launched. In the same period, S&P has increased its assessed value of the portfolio to A$364 million from A$318 million.
According to S&P, the underlying assets have shown strong performance since 1999. Net passing income on a consolidated basis has increased from A$26.3 million per annum in 1999 to the current level of A$31.4 million. The rental leases that collateralize the deal have average lives of 8.7 years, and there is a conservative 56% debt service coverage for the bonds.
The transaction - issued out of the Leda Asset Securitization special purpose vehicle - is split into four tranches. Aside from an A$133.68 million triple-A rated senior tranche (A$117.95 million for the original deal), the three subordinated tranches benefit from upgrades by S&P since the original deal.
The A$21.68 million of class B notes are now rated AA, up from AA- for the A$42 million notes originally. Additionally, the A$32.52 million C tranche (originally sized A$40.15 million) has seen its rating go up to A from BBB, while the A$15 million D notes (A$14.5 million in the first deal) have been upgraded to BBB from BBB-.
In 1999, the pricing for the senior tranche was 42bp over the Bank Bill Swap Reference Rate (BBSW), 75bp over for the B notes and 108bp over BBSW for the C notes. As will be the case for the refinancing, ANZ will be sponsor for the D-notes, with the pricing undisclosed.
According to an official at ANZ, spreads for the bonds have not moved a great deal since 1999 because of the buy-to-hold mentality among investors. Three years down the line, it seems highly likely that pricing next week will be set at very similar levels, with spreads having moved out in recent months by more than 5bp.
The official believes that this will appeal to investors. "What you have in this deal is a combination of a repeat issuer and assets, which are not highly-geared, that have performed well over time," the official says. "I think the margins will be pretty similar to the existing tranches, but investors will effectively be getting extra yield on the B and C notes as they are now rated one notch higher."
Leda's transaction - along with the A$112 million transaction Westpac is arranging for Tyndall Meridian Trust and a couple more deals in the pipeline - will mark something of a milestone for CMBS activity in 2002. "Australian CMBS issuance this year will be more than A$3 billion, and total outstanding CMBS debt, nearly all issued since 1999, is now more than A$5 billion," comments Ashley Reed, director of structured finance ratings at S&P. "Over the same period, the credit performance of CMBS transactions has also been extremely strong."