Extra MSA Group, the owner, developer and operator of motorway service areas (MSA), privately placed a 10-year fixed rate £220m commercial mortgage-backed bond before Christmas, locking in historically cheap long-dated money.
Aalto Invest placed the £220m bond with three investors: Rothesay Life Ltd, which took the majority, Dongbu Insurance and Dongbu Asset Management, as well as an additional large UK institution.
The privately placed bond refinances a maturing RBS-led £180m club deal including Barclays and Santander. Aalto Invest will also act as servicer on the bonds.
The bond is secured by Extra MSA Group’s nine-strong Abraham portfolio – comprising seven MSAs operating under the ‘Extra’ brand along with two pairs of separate MSA filling stations let to Shell and BP. The portfolio includes Extra’s M40 Beaconsfield and M25 Cobham MSAs, two of the newest and busiest Service Areas in the UK.
The portfolio has benefited from rental value growth under the current ownership, with the annual net rental income now in excess of £23m and the portfolio’s value thought to around £400m, reflecting a 55% LTV which is lower than is typical in banking financings.
The bond was priced against the 10-year UK Government Gilt Index, just before Christmas at an all-in cost of just less than 3.7%.
Given that the 10-year UK Government Gilt Index was at approximately 1.85% on 23 December, when the bond legally closed, this implies that the margin achieved by Extra MSA Group was around 185 basis points.
In the month since the bond priced, both yields on government gilts and credit spreads have continued to tighten further creating a perfect storm for borrowers seeking to lock in long-term money for stabilised and relatively modestly geared commercial property.
The window for historically cheap long-dated money for stabilised commercial property is expected to remain open for the majority of this year which is expected to drive refinancings of this kind over the course of 2015.
For Extra MSA Group, majority owned by Evergreen Real Estate Partners, an investment partnership managed by London-based M3 Capital Partners, the refinancing returns capital to investors and provides capital for further development across the remainder of its portfolio.
Stephen Eighteen, head of origination at Aalto Invest, said: “This transaction provides Extra with long term institutional debt funding via the capital markets, allowing them to both diversify sources of debt funding and significantly extend the maturity of their overall debt profile.
“Extra holds a market-leading position in the MSA sector. The surplus income above the low fixed coupon on the Bond locks in a healthy and growing dividend stream for theiIssuer, as well as providing the Institutional Investors with a fixed long term, secure income stream.”
Andrew Long, chief executive office for Extra MSA Group, said: “We are pleased to have concluded this debt transaction at a low fixed rate for a full 10-year term.
“The calibre of the three global investors underlines both the quality of Extra’s property assets and its tenant-base, as well as Extra’s ability to proactively manage a secure income stream in this specialist sector, with further ongoing long-term income growth potential.”
RBS Private Placements acted on behalf of Extra, in conjunction with lawyers Clarke Willmott, Clifford Chance and DWF, together with Carey Olsen.
Aalto Invest acted on behalf of the three investors who were also advised by DLA and Walkers. Colliers International provided valuation advice to the investors.