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CMBS rides again

September 15, 2009

Well, sort of.

UK supermarket retailer Tesco is planning a 559 million pound securitisation of retail stores and distribution centres.

It’s good to see some kind of CMBS market getting going in Europe given the vast amount of real estate loans that need refinancing in coming years. But, like some of the earlier deals this year, this transaction is just a very tentative toe in the water, rather than a market revival.

Fitch Ratings notes that the deal is entirely expected to be repaid by cashflows derived from Tesco’s rental payments, and the rating agency grades the bonds the same as Tesco (A-). In other words, bond investors aren’t taking much real estate risk —  they’re just taking Tesco credit risk and presumably will get paid a small pick-up over the company’s corporate bonds to compensate for the more complex structure.

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