RETAILFINANCING

2005 – 2011- AND BEYOND?

Maarit Nordmark 14.4.2011 2RETAIL FINANCING

Real CompetenceFINANCE & ASSET MANAGEMENT

We are independent pan-Nordic financial consultants.

We offer sophisticated financial solutions, company- and security structures, financing and refinancing of properties and structuring of pan-Nordic transactions.

maarit.nordmark@realcompetence.se+46 70 688 63 83www.realcompetence.se/finance

Maarit Nordmark 14.4.2011 4RETAIL FINANCING

2004 – 2005 2004: ICR-breach lead to waterfall/escrow but not to default

Pre-letting demands: Base Case Income, Rental Gross Income criterias for draw-downs, together with Project Monitor Reports

Hedging 70 % min

LTV, LTC max 70%

Interest rates for development 140 – 200 bps, depending on tranches

Base interest = bank’s funding cost (appr 30-80 bps at the time)

Cancellation Fees 40 – 60 bps, Commitment Fees 50 – 80 bps

Not much competition between the banks, key client relations important

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2006 - 2007 Competition between the banks getting fierce 2007

Syndications larger – earlier syndication requirements from € 50 m, now from € 150m. Indicates higher risk taking for the banks at the time.

Margins down, below 100 bps even in SPV structures with new clients from abroad, despite the LTV:s up to 85 – 90 %.

Funding cost no longer the clients’ risk

Amortisation requirements re-defined

Borrowers’ market

Junior lenders usual until 2007, during the year the deals are getting so tight and ICR:s going down so much that there was no more room – or need - for juniors.

Almost all of the clauses in the financial agreements flexible when negotiated. Covenants differentiated to ”soft”, ”hard” or ”light” in the agreements.

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2007 - 2008 International refinancing and interest rate chrisis in August 2007, not much

publicity, but indicated diminished trust between the banks. Sub-prime chrisis surfaced at the beginning of 2008 and decreased during the year.

Some banks stopped lending already during the last quartier of 2007, with silent decisions.

Non-binding term sheets taken back by the banks from Q4/07

”How bad can it get?”

September 2008 – the unthinkable happened

”How are we affected?” ”How are our clients and other banks affected?”

Financial institutions analysing their own numbers and refinancing first, then looking at the clients’ situation

Maarit Nordmark 14.4.2011 7RETAIL FINANCING

2009”How bad can it get?” – And it got worse… and worse…

Reconstructions

Banktruptcies

Take-overs

Worst cases: no decision making ability, syndication parts not able to agree to which strategy to follow, no responsibility takers

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2010 Strategies formed

Synergies defined

Almost impossible to borrow – other than for bank-driven deals

The lenders’ market

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2011 Banks lending again, also for new deals – but more cautiously

Insurance companies coming up with financing due to cheap re-fi, teaming up with banks

CMBS – but smaller volumes than earlier

Key clients getting money again; 50 - 70 % LTV, junior tranches still expensive

Mezzanine funds coming up, with or without partial ownership

Stressed structures still large part of the transactions in the Nordic countries

Refinancing of old deals challenging

Key clients in default getting capex-lines and LTV-solutions if ICR:s ok

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The Future? Basel III – new tools needed for analysis, credit valuation and rating

Different banks in different countries – different positions regarding core capital, refinancing, syndications, mortgage pools etc.

Key clients getting money, both first and cheaper than others – relations-driven banking is back

Differentiation between local and global actors – both amongst clients and banks

Mezzanine financing, new bond structures, securitization, insurance companies

Banks will expand to new markets again – only a matter of time (2-5 years)

Old truths still valid; the yields, the interest rates, the inflation, the vacancies

Lenders will follow the borrowers’ market closely – more reporting needed