| Tue 20 Jun 2006, 10:03 | | Freestone securitisation hits the right notes |
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Freestone securitisation hits the right notes
June 20, 2006
By Ingrid Salgado
Cape Town - Freestone Property Holdings had successfully placed R500 million worth of asset-backed notes with institutions as part of a plan to lower costs by converting borrowings to securitised notes, the listed property group said yesterday.
The securitisation was oversubscribed by almost two times as eager institutions displayed a hearty appetite for Freestone's property portfolio.
Rand Merchant Bank (RMB), which is managing the securitisation, said Freestone was only the fourth South African firm to take advantage of lower finance costs through a commercial mortgage-backed securitisation structure, in which the underlying assets were commercial properties.
RMB securitisation specialist Damian Botoulas said property companies were generally resistant to the complexity of such deals. In Freestone's case, the securitisation involved about 30 different legal agreements and the creation of several special purpose vehicles.
Nevertheless, he said, the demand shown by institutions subscribing for the notes confirmed the appetite for this type of product, "despite the current market volatility and the number of similar issues coming to market this month".
Freestone would use the capital to finance the bulk of its debt, which stood at R630 million in December. The notes fixed the finance costs on the majority of its debt at about 9.2 percent, including the high upfront costs of securitisation.
Peter Thurling, an executive director of Freestone, said it was difficult to specify what savings this would represent going forward as it would depend on the rate at which Freestone fixed its debt. If the company had fixed its debt last year, he said, savings would have amounted to about 0.75 percentage points.
Until May 25, the company, in which Momentum owns 37 percent, had opted for a riskier floating rate to take advantage of lower interest rates.
Thurling said Freestone had transferred its better income-generating properties into a separate subsidiary, effectively ring-fencing them to secure a better securitised rate.
The ring-fenced assets made up about 40 of the 84 properties in Freestone's portfolio, and included top performers such as Durban's Home Centre shopping centre, Cape Town's Pinnacle office building and two office blocks in Rosebank. The group's rural shopping centres in Eastern Cape and KwaZulu-Natal were excluded.
Ratings agency Moody's Investors Service rated the notes into three categories: AAA, which were taken up by eight institutions; AA, taken up by four institutions; and A, taken up by nine institutions.
The margins payable to investors in the notes, which mature in 2011, are 0.31 percent, 0.5 percent and 0.67 percent, respectively, in addition to variable interest paid quarterly over the five-year life of the notes.
Freestone closed 35c up at R7.75 yesterday, while the real estate sector lost 0.33 percent.
