Guy Hands’ private equity firm Terra Firma is set to refinance its €7bn acquisition of the Viterra German residential portfolio with the biggest ever securitisation of German assets and the largest ever syndicated slug of mezzanine debt.
Around €4bn of senior debt is set to be refinanced through securitisation next year, possibly in a single deal, and €800m of mezzanine debt will be sold down this year.
When UK-based Terra Firma bought Viterra, it paid €7bn — made up of around €1bn of equity, ¤1.5bn of existing debt and €4.5bn of new debt provided by Citigroup, Barclays, Hypovereinsbank, Eurohypo, Royal Bank of Scotland and Société Générale. The acquisition was completed in August, paving the way for Terra Firma and its banking partners to get on with the refinancing, which will be a landmark deal for German CMBS.
It will not be the first major deal to hit the markets. Morgan Stanley Real Estate Fund is to securitise the senior debt secured on the €2.1bn portfolio of German residential property it bought from industrial company ThyssenKrupp later this year.
The German CMBS market has been boosted by a combination of factors: the success of the true sale initiative established by a number of banks, which won legislation to promote true-sale rather than synthetic securitisations; legislation ending state guarantees for the landesbanks, reducing their dominance in lending; and the entry to the market of powerful and financially sophisticated overseas investors.
The introduction of new capital adequacy regulations under Basle II in 2007 will make it harder for banks to keep risky loans on their balance sheet (as these loans will require more capital cover) and thus encourage them to securitise.
Caroline Philips, head of securitisation at Eurohypo, said: “2006 could be the year of German CMBS. A couple of major deals will really kickstart the market.”
