Bloomberg News

Terra Firma to Refinance German Unit’s $5.3 Billion in Debt

July 10, 2012

Deutsche Annington Immobilien AG, the German property company owned by Guy Hands’ Terra Firma Capital Partners Ltd., reached a preliminary agreement to restructure 4.3 billion euros ($5.3 billion) of debt.

Under the accord, Deutsche Annington will get more time to repay holders of its commercial mortgage-backed securities, known as German Residential Asset Note Distributor Plc, the Bochum-based company said in a statement today.

The agreement, reached after more than a year of talks, was accepted by creditors that hold 32 percent of the debt and now needs approval from the other investors. The securitization, known as GRAND, is Europe’s biggest corporate CMBS, according to Fitch Ratings. A restructuring would clear the way for Deutsche Annington to sell shares to the public, Chief Executive Officer Wijnand Donkers said.

“The decision to start early with the negotiations paid off,” Donkers said on a conference call. The refinancing will probably be completed in the fourth quarter, he said.

Deutsche Annington owns 186,000 apartments in German cities including Berlin and Cologne. Parties agreeing to the deal include JPMorgan Chase & Co. (JPM:US), Pacific Investment Management Co., BayernLB and Standard Life Investments Ltd. There are more than 100 note holders.

‘Right Path’

“They’re moving on the right path,” said Torsten Klingner, an analyst at Warburg Research in Hamburg. “If they can close this deal this year, I expect they’ll try to go public next year.”

Deutsche Annington registered as a German corporation in March. The agreement requires the company to repay 1.7 billion euros of the loan before carrying out an initial public offering, Donkers said.

Under the proposed terms, Terra Firma would add 504 million euros of capital and Deutsche Annington would be given five years to pay off the rest, according to the statement. One billion euros would be due in the first year, 700 million euros in the second year, then 650 million euros in the third and fourth years and the rest in the fifth year. The added cash will reduce the loan-to-value ratio to 59.7 percent from 71.7 percent, according to documents published by Deutsche Annington.

Raising Money

Deutsche Annington is in talks with German banks to raise cash for the 1 billion euros that will be due in the first year, Donkers said. The amount may be refinanced in portions, he said.

By restructuring the terms to allow a gradual repayment, Deutsche Annington has reduced its financing risks, said Kai Klose, an analyst at Berenberg Bank. Refinancing a loan of this size before its 2013 maturity would have been difficult because banks are cutting back on property lending, partly in order to meet stricter capital rules. Financing smaller amounts over five years is easier.

“Now their situation is much more stable because they don’t have so much short-term debt,” Klose said.

Terra Firma, based in London, founded Deutsche Annington in 2001 after buying a century-old portfolio of apartments built for employees of the former Bundesbahn state railway.

In 2005, the property company bought homes valued at 7 billion euros from German utility EON AG and financed the purchase with a syndicated loan from a group of banks, according to the investor documents. The loan was refinanced with the 5.8 billion-euro GRAND securitization, of which 4.3 billion euros is now being restructured.

Rothschild and law firm Freshfields Bruckhaus Deringer LLP are advising the creditors, the statement showed. Blackstone Group International Partners LLP and Allen & Overy LLP are advising Deutsche Annington.

To contact the reporter on this story: Dalia Fahmy in Berlin at

To contact the editor responsible for this story: Andrew Blackman at

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