Asset-backed securitisation in the USA and the role players : a practical application with commercial property in the South African context

Venter, Martin (2002-12)

Thesis (MBA)--Stellenbosch University, 2002.

Thesis

ENGLISH ABSTRACT: Owners of directly held, large commercial properties mostly face problems regarding liquidity and sometimes higher-risk exposure due to large properties dominating their property portfolio. • Exit vehicles in the listed property sector on the JSE are gaining momentum but are, however, still facing the negative impact of overall bear market conditions. • An exit vehicle in the bond market can serve as an alternative, where a Limited Purpose Company/Special Purpose Vehicle (SPV) acquires a rental income stream from a portfolio of properties and issues bonds. The funds raised from bond investors, who focus on the credit rating of the income stream and not the properties, are then used to acquire the property assets. • Current market conditions, favour an asset-backed securitisation of property leases. Low interest rates and other factors in the current market, as discussed in this document, ensure lower costs of debt and easier access to capital when funds are raised on the bond market, relative to the equity markets, with highly geared structures not necessarily causing a negative impact on the credit rating (80% - 90% gearing possible with A - AA local credit rating). • Usually a promoter, a Merchant Bank and a few institutions/ pension funds are involved. Example: Institution X will be requested to take up an equity stake in the fund by selling some properties or stakes therein (Institution X buildings) and receiving payment in a combination of cash, junior bonds and equity. The benefits to Institution X are discussed on page 39.

AFRIKAANSE OPSOMMING: Eienaars van groot kommersiële eiendomme wat direk besit word, ondervind normaalweg probleme rakende likiditeit en verhoogde risiko a.g.v. die groot eiendomme wat hulle portefeulje domineer. • JEB (Johannesburgse Aandelebeurs) genoteerde maatskappye, as uitgangstrategie vir die verkoop van eiendom, is 'n oplossing, maar beer mark toestande verlaag die moontlikheid. • 'n Maatskappy genoteer op BESA (Effektemark) kan as uitgang- strategie dien, waar die voormelde maatskappy met beperkte aanspreeklikheid die huurinkomstestroom van 'n portefeulje van eiendom aankoop en effekte uitgee vir die finansiering van die transaksie. Die beleggers wie die effekte koop, fokus op die kredietgradering van die effekte en nie die eiendom as onderliggende bate nie. • Huidige mark omstandighede verbeter die moontlikheid van 'n bategesekureerde sekuritusasie van eiendomshuurkontrakte. Lae rentekoerse en ander faktore wat in hierdie dokument bespreek word, verseker laer koste van kapitaal en makliker toegang tot fondse relatief tot die aandelemarkte. Hoë hefboom-finansiering is moontlik sonder te groot impak op die kredietgradering. (A-AA kredietgradering moontlik met 80%-90% skuld) • Normaalweg is 'n promoter, 'n beleggingsbank en 'n paar institusies/ pensioenfondse betrokke. Bv. Institusie X word versoek om aandeelhouding op te neem in 'n maatskappy deur eiendomme te verkoop aan die voormelde maatskappy en betaling te ontvang in die vorm van 'n kombinasie van kontant, junior effekte en aandele. Die voordele vir Institusie X word bepreek op bl. 39

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