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Trust Insider: can the new-school of property credit trusts deliver?
by James Carthew on Oct 15, 2013 at 00:01
Swef is the larger of the two. On its launch in December 2012, it raised £228.5 million, which meant it ranked as the largest new issue in the closed-end fund market and one of the largest IPOs in the UK for 2012.
Swef aims to generate a return of 8% to 9% per annum. They reckoned they would be able to manage a dividend of 3.5p in the first year as things got going and the idea was that Swef would thereafter pay dividends of 7% on the issue price.
For the most part, Swef is making new loans though it is allowed to buy loans in the secondary market. To manage its risk it aims to lend only to good covenants and has a maximum 20% exposed to a single borrower or secured against any single asset, and loans against properties being developed are limited to 25% of the portfolio.
Typically it will lend money for terms of three to seven years with no more than 25% of loans having terms longer than seven years.
Spicing things up
To spice things up a bit, it holds a mixture of senior secured loans, mezzanine debt and junior tranches of structured (aka syndicated) loans. 40%-50% of the portfolio is intended to be in whole loans, 40%-50% in subordinated tranches (just like Real Estate Credit which I wrote about last week) and mezzanine loans and up to 20% in bridging loans and loan on loan financing.
Swef is happy to structure loans itself – by originating the loan (for which the managers get a fee of 0.75%) and selling on the highest tranches.
The first deal it made was a mezzanine loan secured against some top London hotels, where it lent £19 million for a double-digit interest rate as part of a £550 million package with an overall loan-to-value (LTV) in the low 50s. It then raised about half of this £19 million through a series of tap issues of extra shares.
Fast forward to the interim management statement in May 2013 and not much had changed, and Swef’s premium began to evaporate.
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