Tyndall Meridian Trust (TMT), a listed property trust with interests in 28 commercial properties located throughout Australia, is set to tap the securitization markets for the first time with an A$112 million ($62.9 million) commercial mortgage backed (CMBS) deal.
A banker at Westpac, sole lead manager on the transaction, says that presentations have been made to investors and hopes pricing will happen either at the end of this week, or most likely early next.
The bonds, to be issued through the TMT Finance special purpose vehicle, are collateralized by a secured loan between the SPV and Tyndall Investment Management (TIM), a subsidiary of TMT, over a portfolio of 18 commercial properties. Cash flows generated from the properties - located in New South Wales, Queensland, Australian Capital Territory and Victoria - will be used to pay back the loan, and ultimately the bond investors.
The average loan-to-value of the portfolio - based on a 10% stressed interest rate scenario and Standard & Poor's assessment of likely cash flows - is 37%. Currently, there is 95.7% occupancy on the properties, which so far have generated an average annual income of A$32.5 million.
Standard & Poors has given provisional AAA ratings to the notes, which have a scheduled bullet maturity of five years and final maturity of six and a half years. In the unlikely event that the portfolio has not generated sufficient funds at scheduled maturity, it will act as a trigger for TIM to sell properties in order to repay noteholders.
Oversupply in the Aussie securitization market early on this Autumn pushed spread levels out by as much as five or six basis points, with even triple-A rated CMBS issues trading at more than 40bp over the bank bill swap reference rate. This has caused some issuers to hold off deals until spreads narrow, but Tony Pope, a fund manager at TMT, says that securitization is still an attractive option for listed property trusts.
"We are using this to repay existing bank debt and also provide the trust with a longer-term debt structure," Pope explains. "It is a bit premature to speculate on pricing, but this is triple-A paper and looking at the levels that other CMBS deals are currently trading at, securitization is still cheaper than comparable five-year bank debt.