Europe’s biggest real estate re-fi proposed

Head of terms agreed for Terra Firma’s German residential property company, Deutsche Annington, to refinance €4.5bn of outstanding cmbs debt.

Deutsche Annington Immobilien (DAIG) revealed details today of a restructuring proposal for €4.5 billion of outstanding cmbs debt in what is being billed as Europe’s largest real estate refinancing.
Deutsche Annington, which is a portfolio company of London-based private equity firm, Terra Firma, announced that heads of terms had been agreed on a non-binding basis with several of the largest bondholders and shareholders representing 37 percent of notes issued. It further revealed that Terra Firma would provide equity “support” of €504 million helping the loan to value of property in the company to fall below 60 percent.

The agreement is an attempt to refinance some €4.5 billion of outstanding cmbs debt in the German residential company that originally stood at a total of €5.8 billion when first arranged in 2006. The cmbs arrangements were made in the wake of Deutsche Annington becoming Germany's largest housing company after taking over fellow German residential property company, Viterra, for €7 billion in 2004 giving the group some 228,000 units throughout Germany. The problem for the company is that Europe's limited real estate loan market has meant refinancing has been impossible, so a staggered repayment option has been put to bondholders.

The refinancing deal has so far been agreed by an adhoc group of noteholders in the ‘Grand’ securitisation under a scheme of arrangement. The group of noteholders is being represented by Rothschild and Freshfields Bruckhaus Deringer and include well-known and blue chip financial organisations BayernLB, ING Investment Management, JP Morgan, Landesbank Baden-Württemberg, PIMCO and Standard Life Investments, who together represent around 32 percent of the Grand notes.

In a statement, Deutsche Annington said it would enable the company to refinance assets to provide an “orderly return of capital” to noteholders over five years. It would also give the company some wriggle room to attract capital to improve properties, it said.

The proposal that has been put to bondholders involves staggered partial refinancing in a so-called ‘amend and extend’ strategy. With the extended maturity, €1.24 billion is to be repaid within the first year, of which Terra Firma will put in €240 million. Then in the second year, €700 million will be repaid, followed by €650 million in each of the third and fourth years, and the remaining amount in the fifth year.

The extensions comes at a cost, of course. To reflect the extended maturity, the margin on the Grand notes will be increased from 48 basis points to 165 basis points.

Terra Firma began building up Deutsche Annington into a powerhouse of a German residential property company when it acquired 64,000 residential properties in 2000 for €2.25 billion from the German Federal Railways. It now has some 190,000 properties.