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BBC tunes in to securitization

Issuer: ELoC 16
Size: £813 million
Type: 30-year bond
Lead manager: Morgan Stanley

The market-leading status of Morgan Stanley's European Loan Origination Conduit (ELoC) product has enabled the bank to bring the BBC to the bond markets for the first time in the broadcaster's history.

The BBC, whose on-balance-sheet borrowings from the UK government cannot exceed £200 million ($320 million) under the terms of its Royal Charter, needs the cash to redevelop its central London headquarters, Broadcasting House. After talking to another bank about borrowing bank debt for a PFI/PPP-style deal, the BBC heard Morgan Stanley's pitch on April 1.

Morgan Stanley argued that the corporation could tap the bond markets for cheaper funding if a loan from the bank to finance a lease-and-leaseback transaction was repackaged and sold as bonds. These would be backed by 30 years' BBC rental payments to the special purpose vehicle that has bought Broadcasting House.

Big, cheap borrowing The deal, eventually executed through ELoC 16, involved the BBC issuing a 30-year, £813 million bond fixed at just over 5%. That's the largest ever single-asset, single-tenant securitization in Europe, carrying what some observers reckon is the lowest coupon ever in the long-dated commercial mortgage-backed securities market.

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