CSFB breaks 20, refinances ELoC loan in continental CMBS

Credit Suisse First Boston this week brought the first multi-jurisidictional CMBS from its Titan real estate conduit, becoming the first CMBS to break the 20bp new issue barrier.

As with CSFB's debut conduit deal in November, a UK transaction, Titan Europe 2004-2 Plc hit new spread tights, albeit for a slightly shorter average life than most CMBS deals. At 19bp over Euribor, the 3.9 year triple-A tranche of Titan came 2bp inside KFN Office Finance's seven year triple-A notes.

The deal also highlighted the fierce competition raging in the conduit CMBS market this year. The largest loan in the portfolio, constituting 47.4% of the pool and secured on seven properties leased to Thales, refinances a loan from Morgan Stanley's ELoC 18, closed only in June this year.

CSFB has effectively taken the loan from Morgan Stanley's deal, with a likely direct impact on Stanley's revenues.

Under the new financing provided by CSFB, the loan has a normalised debt serice coverage ratio of 0.97, according to Moody's, compared with the previous loan's DSCR of 1.02 at the time of the ELoC 18 transaction.

The loan refinancing has an added competitive piquancy given CSFB's hiring in May this year of a senior Morgan Stanley CMBS syndicate offical, Arvind Bajaj.

At initial guidance of 20bp the book was two times covered and only two accounts dropped out at the tighter level. Approximately 20 accounts participated from around the world. Demand was particularly strong from France, Germany, the UK, Ireland and Austria, but US and Asian accounts also participated in the 144A deal.

But even in an environment of enormous investor demand for asset classes showing any yield, some investors balked at Titan's relatively aggressive structure ? among other things the capital structure includes an interest only strip and retained tranche to trap prepayment penalties and hedging gains. It is tranched down to single-B with an LTV of 88.5% according to S&P and 73% according to CSFB.

The transaction is only the second multi-jurisdictional conduit securitisation from continental Europe ? ELoC's debut securitised UK and Irish property while ELoC 17 parcelled Belgian, Irish and French buildings. Titan, by way of contrast, is backed by German and French properties, allowing a relatively simple structure using a master servicing agreement to cover both portfolios.

The German loans were placed directly into the Irish issuing SPV, while the French ones were placed into an FCC which issued units to the Irish SPV.

The pool's five loans are backed by 38 properties. Some 63% of the pool, consisting of seven offices and six industrial/office properties, is located in France. The German properties comprise 23 multifamily dwellings, a hotel and two office/retail properties.