S&P:1st Rated Revolver Embedded in a Securitization

Business Wire, May 25, 2000

Business Editors

LONDON--(BUSINESS WIRE)--Standard & Poor's

May 25, 2000--The first rated revolver embedded in a securitization has been introduced into an U.K. property deal, providing the issuer with a revolving credit facility that is more akin to a bank loan facility. U.K. property company Canary Wharf Group's GBP475 million bond issue will reduce its funding costs over more traditional bank and syndicated loan facilities. The variable-rate notes have been priced at 40bp.

"By having it rated and distributed to a much broader universe, it cuts in half the cost of borrowing from traditional corporate lending sources," said William Cumming vice president, of co-lead manager Schroder Salomon Smith Barney.

Most interest in the variable-rate notes has been from commercial paper conduits -- which buy long-term assets and issue commercial paper on the back of them -- as the assets will be high investment-grade.

Canary Wharf Finance II PLC, a special-purpose entity set up by the group, will issue five classes of fixed- and floating-rate term notes, rated from 'AAA' to 'BBB' by Standard & Poor's, and two classes of R variable funding notes, which will be rated subsequently. The GBP250 million five-year R notes can be drawn and repaid on an ongoing basis.

"The R notes are an innovative structure providing the flexibility more usually associated with traditional banking lines and utilizing the capital markets to warehouse assets in the short-term prior to refinancing via future tap issues to the term notes," said Peter Hansell, Associate Director, of Standard & Poor's Structured Finance Ratings in London.

The transaction is secured by a mortgage on several properties within the Canary Wharf Estate, which is a mixed-use development near the City of London. Tenants are largely major global investment banks. Although rents at Canary Wharf are showing a discount of 30%-35% to those in the City of London, its low vacancy rate is expected to put upward pressure on rents in the near future.

"Canary Wharf is unusual in that it is 100% focused on a relatively small site, with high-quality tenants, making it ideally suited to this type of structure," Mr. Hansell said.

Mr. Cumming expects more corporate lending to move toward structured rated lending: "With the Basle changes being anticipated, you now have a 20% risk-weighted asset as opposed to a 150% risk-weighted asset when a company is not rated."

Of possible concern to investors is the balloon payment due at maturity. "The balloon payment is unusual because you are taking a view on a property asset in 30 years time, after which all the tenancies have expired and been renewed. However, the GBP100 million balloon payment is relatively small," said Mr. Hansell.

The deal is the second securitization for Canary Wharf, and the fourth property securitization in the U.K. in the past 12 months. There also has been a number of commercial mortgage portfolio securitizations in the U.K.

A copy of Standard & Poor's complete presale report for this transaction is available on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. The report is also available on Standard & Poor's Ratings Services Web site at www.standardandpoors.com/ratings. Under Presale Reports, select Structured Finance, then Commercial Mortgage-Backed Securities, Standard & Poor's said.---CreditWire