The centre, which has more than 125,000 square metres of floor space and includes 283 retail units, has raised £610 million ($978 million) against rental income. The deal is also the largest single property securitization in Europe.
The financing includes £390 million in senior debt rated AAA/Aaa by all four international ratings agencies. The bonds have a maturity of 30 years. The proceeds of the issue are intended to repay existing bank debt and to enable the centre's parent company, Peel Holdings, to increase its property and investment holdings.
Travers Smith Braithwaite and Berwin Leighton advised Peel Holdings on the transaction. For Berwin Leighton, property partner Claire Milton and property and finance consultant Malcolm Brummer led the firm's team. James Richards, a banking and finance partner, was head adviser at Travers Smith.
Peel Holdings knows both firms well from previous debt and property transactions and wanted to retain each of them. Brummer negotiated the property financing loan arrangements while Richards and his team were responsible for corporate security aspects. "We really both worked side by side from the beginning, structured the whole thing together, and although James and I had never even met before, we got on very well and it was a good exercise," says Brummer.
Allen & Overy advised Deutsche Bank, the arranger and manager, on the structure and documentation of the deal. David Krischer, head of Allen & Overy's securitization group, was in overall charge of the team, with senior securitization lawyer Conor Downey lead adviser. Sonya Rofani assisted Downey, and Dorothy Wilkinson provided tax advice.
Work started on the deal in mid-Auguest but was paused from November until January as the markets became cautious in advance of the new millennium. The main issue for the parties involved was to understand the nature of the assets in a market which is can be unstable. The length of the bonds and the large number of retail units, many with long tenancies, helped bring the deal to market. Brummer says: "It hasn't been done before at a shopping centre but in many respects it's the best sort of property to do this on because of the range of risks you're running with it.
Krischer says: "Raising finance for property through securitization seems set to continue to be a source of innovation in the capital markets." There are a number of similar shopping centres for which such financings may be appropriate.