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CMBS: Tesco turns back the clock

Corporate, not real estate, is key; White Tower teeters on the brink

Tesco Stores are to be securitized

Tesco Stores are to be securitized

The European securitization market witnessed that rarest of things in June – primary issuance in the real estate-backed securitization market. And commercial real estate-backed at that. Tesco Property Finance 1 is a £430.6 million ($703.1 million) single-tranche deal backed by retail properties that are subject to 30-year bondable occupational leases with Tesco Stores, the UK’s largest supermarket chain. But this deal is very far from what the market had come to understand as CMBS. It is a straightforward sale-leaseback transaction where the bonds are linked to lease payments guaranteed by Tesco. As such the deal is more of a corporate securitization, linked to the credit quality of Tesco itself, not the value of the underlying properties. It was also clearly targeted at long-term institutional buyers – with a final maturity of 2039 – rather than the traditional ABS investors of old. The deal was arranged by Goldman Sachs. "This deal is innovative in its simplicity," says Ben Green, executive director in structured finance at Goldman Sachs in London.

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