Leading the herd
Taurus (GMF) 2013-1 had a huge impact on the post-crisis European CMBS market, thanks to its broad, open syndication.
There was no obvious clearing spread for new European CMBS before Taurus priced in May, but it has since become the reference point. Leads Bank of America Merrill Lynch and HSBC sold bonds to 40 accounts, meaning the notes are regularly quoted in the secondary market, and have anchored the spreads of another €3.2bn of Germany multifamily CMBS.
While other trades, notably Florentia, Merry Hill or Chiswick Park, showed that deals could be done, they were sold to specific accounts (JP Morgan’s CIO) or done as small clubs. As a result, the bonds rarely trade.
Taurus, at heart, was a simple trade. BofA Merrill lent multifamily property owner Gagfah €1bn at 240bp for the fixed portion of the loan and 225bp on the floating, securitised it in the bond market at a blended spread of 140.6bp, and pocketed the difference.
Little wizardry went into it (the biggest innovation was the structure of the deferred arrangement fee certificates, allowing the bank to capture the spread difference between bonds and loan) but that was the point. Relative simplicity, however, does not mean the deal was easy.
“We were working on this deal for a matter of years, not months,” said Matthias Baltes, an MD in BofA Merrill’s securitisation team. “It’s easy to say that once secondary got to a certain level you could get a new deal done, but the fact was, nobody had tried – for years. We structured the deal so we could have gone for a syndicated loan exit if the bond market was not there.”
To make things extra challenging, BofA Merrill was in the public eye – Gagfah told the market about the loan refinancing with possible CMBS exit in February, two months before the deal actually priced.
The leads announced the deal in late April with only the Class E and DAC notes placed, though with some protected orders in all tranches. The remaining bonds sold well.
“We had 40 names in the book, which is as good as any structured finance deal, and a substantial subscription level of almost €3bn,” said Baltes.
Bonds went all over Europe – the UK, Italy, France, Germany, Switzerland, the Nordics, the Netherlands – and 9% was non-Europe.
Many seasoned structured finance accounts – including M&G, BlackRock, Swiss & Global, European Credit Management, Insight, and HSBC Asset Management – bought bonds, according to Thomson Reuters data. This kind of roster helps the “example effect” of the deal.
European CMBS is now unequivocally open. German multifamily CMBS trades inside some Dutch RMBS, and growing confidence means banks are preparing deals from tougher jurisdictions in the periphery. But when these deals hit the market, they, like 2013’s CMBS roster, will be benchmarked against Taurus.
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