Friday, November 6, 2009

BALL 2005-MIB1 - Toys R Us

FT reported earlier this week that Toys is going to issue corporate debt to pay off their $800mm CMBS loan. KKR, along with Bain and Vornado, took Toys R Us private and split it into an opco/propco structure with 15-year NNN leases. This game was played a lot with the cheap debt that was available via CMBS - take an operator that has some great real estate, by the company at 5x EBITDA (or whatever), then split it into a opco/propco structure and value the propco at 15x EBITDA, sign long-term NNN leases between the two new companies, and load on mortgage debt.

The loans were meant to be transitional and matured 8/9/07 with 3 12-month extensions. They've excercised their extensions and are now looking at a hard maturity in August 2010. The article gets off course when it starts talking about prepayments and how hard of a time it will be to prepay the loan due to prepayment restrictions, BECAUSE IT HAS ALREADY MATURED. Doesn't matter, though, because the interesting part is that the deal may happen as early as next week.

Two CMBS Loans:
Toys ‘‘R’’ Us - DE Portfolio Loan - 89 properties, $170mm in BALL 2005-MIB1, $255mm pari passu, $175mm mezz, $600mm total debt. Some distribution centers. Multiple States
Toys ‘‘R’’ Us - MPO Portfolio Loan - 46 properties, $58mm in BALL 2005-MIB1, $87mm pari passu, $55mm mezz, $200mm total debt. All retail Toys and Babies R Us. Locations in Massachusetts, Pennsylvania, and Ohio.

Both had total debt LTVs at origination of 79.8%.

The $950mm propco corporate debt issued in July 2009, matures 2017, callable 2013 has been yielding between 9.1 and 9.5% over the last week and has a 10 handle coupon. I realize this doesn't jive with the article, but I think their numbers are wrong - same goes for the EBITDA numbers they are reporting.

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