SBB - comment
The Preference share issue from SBB Residential will layer the SUNs, but someone needs to provide senior debt. Also, at 13%, the cost of the instrument underlines the pressure SBB is under in raising finance. Sizing the deal at c40% of the SEK6.2bn of assets in SBB Residential and making that company the issuer will create 40% LTV in this entity. The obligation will be structurally senior to the SUNs. SBB still needs to get its banks lined up to roll existing senior debt. The transaction is due for completion in Mid-August, another indication of how time is increasingly precious.
The Prefs have no cash coupon or expiry date but are callable at a level that would give Morgan Stanley (MS) a 13% IRR. The coupon is a good deal for MS given the asset coverage. The cost is also a warning sign for us. Banks may look at this deal and expect a similar return.