Royal Bank of Scotland has priced and placed £290m of the outstanding £463m Project Isobel debt this afternoon in the first European securitisation of a loan secured by a commercial property loan portfolio in almost six years.
RBS has securitised the outstanding balance of the original £553m four-year loan extended to the special purpose vehicle which owns the underlying 37 commercial property balance sheet loans, which remains owned 75% by RBS and 25% by Blackstone.
The three-class Isobel Finance transaction comprises:
- Class As: AAAs – £230m, with a weighted-average life of 1.48 years, paying a coupon of 255 basis points over three-month LIBOR;
- Class Bs: AAs – £60m, with a weighted-average life of 1.79 years, paying a coupon of 425bps over three-month LIBOR;
- Class Cs: BBB+ – £173m, with a weighted-average life of 1.88 years, paying a coupon of 450bps over three-month LIBOR.
Standard & Poor’s was the sole rating agency, while RBS acted as sole bookrunner and lead arranger.
The legal final maturity of Isobel Finance is 17 October 2038, an estimated six-year tail-period following the longest of the underlying Project Isobel’s 25-year dated interest rate swaps.
RBS placed all the AAAs and AAs, except for the 5% retention requirements under European Commission’s Capital Requirements Directive (CRD) regulations, with a small number of traditional CMBS bond buyers, dubbed “real money investors”.
Separately, RBS today has listed £340.9m in junior notes on the Channel Islands this afternoon, which is essentially RBS and Blackstone’s joint equity holding in the form of tradeable junior notes.
This puts Blackstone’s original equity at £85.225m, while RBS’ equity was £255.675m.
In addition to the £553m four-year senior loan, priced at 450 bps over three-month LIBOR with a one-year extension option, puts the original discount agreed for the Project Isobel loan portfolio at 34.3%, based on a price of £893.9m against a nominal of £1.36bn, according to CoStar News calculations.
The original LTV of RBS’ loan-on-loan financing was 61.8%.
Together with the unplaced £173m BBB+-rated class Cs, RBS has now structured the entire equity and debt capital stack providing the bank with flexibility to trade either the unmarketed bonds or divest some of its 75% equity stake.
RBS has no current plans to sell either but considers these options to be strategically useful for the remaining working out of the underlying loan and real estate portfolio.
Prior to the final closing of Project Isobel with Blackstone in December last year, RBS decided not to take-up third party financing because the bank believed that the 550 basis points margins quoted was disproportionately high pricing for such an ultimately fast-amortising loan.
Lloyds Banking Group’s projects Royal and Harrogate, traded to Lone Star and Oaktree Capital Management respectively, are both financed by short-term loans priced around 600 bps over three-month LIBOR. Oaktree’s JPMorgan loan for Harrogate is thought to be less than 18 months.
The £553m provided in stapled financing was priced at around 100 bps lower by RBS than could be achieved externally, with this lower cost of capital enabling superior returns to both itself and Blackstone.
It remains to be seen whether RBS’ successful placing of £290m worth of bonds secured by the Project Isobel sub and non-performing loan portfolio encourages a wider adoption of NPL securitisations in Europe, given an apparent trade-off between the lower cost of capital achieved with the time taken to close the partial capital markets exit.
The last securitisation of an NPL was Bluebonnet Finance in December 2006, which was of a €2.8bn portfolio of former Hypo Real Estate German commercial and multifamily loans bought buy Lone Star’s Fund V in November 2004 with acquisition finance from Citigroup.