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Terra Firma paves the way to Deutsche Annington debt restructuring

by Jonathan Braude | Published July 10, 2012 at 3:48 PM

Deutsche Annington Immobilien AG, Germany's leading residential property owner, on Tuesday, July 10, unveiled a preliminary agreement to restructure €4.3 billion ($5.27 billion) of debt in a deal that could lead to a public listing in 2013 or 2014.

If the deal goes ahead, British buyout firm Terra Firma Capital Partners Ltd., which owns the German business through a dedicated fund, will start the ball rolling with an injection of €504 million, roughly half in cash. Terra Firma will deliver the other half by forgiving a shareholder loan.

The private equity firm's commitment paves the way for the wider preliminary agreement and gives Deutsche Annington, or DAIG, more time to repay holders of commercial mortgage-backed securities debt, which is listed on the Irish Stock Exchange as German Residential Asset Note Distributor, or Grand. Grand, reportedly Europe's biggest CMBS, is due to expire in 2013, but under the new deal would be extended to 2018.

"It is a huge refinancing of a securitization, which would otherwise have had to be re-securitized next year," said a source close to the situation. "There was no chance of that, so this is an extension of the existing debt."

DAIG will pay down the remaining €3.84 billion over the next five years, and is reported to be in talks with German banks to raise cash for the first year's €1 billion installment. Bochum-based DAIG will pay €700 million in the second year, €650 million apiece in the third and fourth years and the remainder in year five.

Terra Firma's input cuts the company's loan-to-value ratio from 71.7% to 59.7%. However, the deal does not come cheap. The margin on the Grand notes goes up from 48 basis points to 165 basis points to reflect the longer maturity.

The preliminary agreement with an ad hoc committee of key creditors holding about 32% of the debt was reached after more than a year of negotiations. The group includes Bayerische Landesbank, or BayernLB, ING Investment Management, JPMorgan Chase & Co., Landsebank Baden-Württemberg, Pimco Advisers Holdings Ltd. and Standard Life plc. The pact still has to be accepted by a majority of the group's creditors, and the company will start a roadshow to sell the concept before a formal offer in September. A court agreement is expected in mid-November. Under the proposed scheme of arrangement, at least 75% of lenders -- there are more than 100 noteholders -- would have to agree to the plan.

Terra Firma first established DAIG in 2001 to acquire a portfolio of German railway employee apartments, and then followed up with a vast estate of similar apartments bought for €7 billion from the German power company E.ON AG. The deal was financed with the €5.8 billion Grand securitization, which has since fallen to €4.3 billion.

Rothschild and Freshfields Bruckhaus Deringer LLP are advising the creditor committee. Blackstone Group LP and Allen & Overy LLP are advising Terra Firma and DAIG.

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Tags: debt restructuring | Deutsche Annington Immobilien AG | Terra Firma

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Terra Firma paves the way to Deutsche Annington debt restructuring

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