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Bruntwood complete £440m Securitisation achieving best pricing for a 7 year sterling CMBS issue

North West commercial property company Bruntwood have completed a £440m Commercial Mortgage Backed Securitisation of £669m of its office portfolio arranged by The Royal Bank of Scotland. The 7-year issue achieved extremely tight pricing and was well received by investors.

In placing its bonds in the Eurobond market within an impressive 3-month timescale, Bruntwood underwent a complex group restructure and demonstrated that the capital markets aren’t exclusively the domain of London based PLC’s.

The deal represents another milestone in the history of a company that began in the late 1970’s and has grown organically since. Bruntwood’s business model is unusual for a property company being focused on delivering the very best levels of customer service. This is reflected in its customer retention statistics that are four times the industry average; a significant factor in the success of this issue.

Bruntwood’s North of England office portfolio is spread across Leeds, Liverpool and Manchester, where it owns c.20% of the total office stock. Its properties are currently valued close to £900m and the deal leaves property valued in excess of £200m mortgage free. This leaves the company in an enviable financial position with formidable firepower for new projects.

Bruntwood’s £440m 7-year issue was rated by Fitch & Standard and Poors at £350m AAA, £37m AA and £53m A. The offering achieved 20bps above LIBOR for the AAA, 27bps for the AA and 49bps for the A with all levels being significantly oversubscribed.

Royal Bank of Scotland’s Yossi Kraemer, Head of Real Estate Finance Syndicate commented “This is the best ever pricing achieved for a sterling CMBS issue of this maturity at the AA and A level. Demand was particularly high at those levels reflecting investors sentiment towards the Bruntwood brand and it’s management capabilities.”

Bruntwood have long been attracted by the capital efficiencies offered by the CMBS market but until recently felt that the rigid structures imposed were not aligned with it’s market leading flexible customer service approach to letting.

Bruntwood’s Chief Executive, Chris Oglesby comments “We have been aware of the growth of the CMBS market for some time, but we wanted to ensure that the market would afford us the flexibility that we required to operate to our dynamic and customer focused business model before we were comfortable issuing into this market. Working with the Royal Bank of Scotland and the rating agencies, we have put together a structure which provides both the protection that bond-holders require and the flexibility that Bruntwood require to continue to run a successful customer service business.”

True to it’s North of England’s roots Bruntwood aimed to have as much of the professional work conducted in the region as possible, where necessary working with London partners to transfer a degree of knowledge to the region.

Bruntwood’s Banking Director Kevin Crotty commented “Our relationship with the RBS in the north spans nearly 30 years and we are delighted that in their capacity as lead arranger and sole book-runner they brought the deal to market. The local team introduced us to their London specialists led by head of UK CMBS, Sharare Hau and the offices worked closely together throughout. We were impressed by the professionalism and efficiency of the banking team and all of our legal advisors”

Bruntwoods legal work was handled by Addleshaw Goddard with Michael Birchall leading the process with partner Mark Thomas acting on the banking side. Property due diligence was entirely handled by Stephen Kinsey at Cobbetts, Mike Edge at Halliwells and Roy Beckett at DLA Piper. David Roper of Knight Frank, managed property valuations. RBS’s lead legal counsel was Allen and Overy of London headed by Partner Christian Lambie.