Room at the top
German landlord Vonovia’s €20.15bn bridge loan backing its takeover of Deutsche Wohnen successfully tested market appetite for a jumbo acquisition financing during a global pandemic while navigating a tricky political backdrop.
It was the largest EMEA loan of 2021 and the largest ever European real estate acquisition financing.
The €29bn acquisition helped to create Europe’s largest residential real estate group with a combined market capitalisation of around €45bn and more than 500,000 apartments with a combined real estate value of around €90bn.
The financing was an incredibly complex transaction, requiring detailed understanding of the German municipal and political landscape and relevant tax laws.
With upcoming Federal elections, political dimension had to be navigated too. Tenant rights and affordable housing were already a focus of popular anger in Berlin and Vonovia offered to sell some of its assets to the state to ease potential sensitivity over the deal.
Vonovia launched a friendly all-cash offer for DW in May, lining up a €22.4bn bridge loan coordinated by Morgan Stanley, Societe Generale and Bank of America, each underwriting jumbo commitments for a client without a global brand.
In July, after Vonovia narrowly failed to pass the 50% threshold to seal the takeover, the company subsequently increased its stake in DW to 29.9% via market purchases and launched a new offer in August, confident of final success.
The bridge loan was revised to €20.15bn to back the new offer and a second syndication was completed in August with 14 banks committing.
The revised bridge loan comprised a €10.75bn 364-day facility and a €9.4bn 12-month facility.
€16.6bn of the bridge loan covered the €11.3bn acquisition of DW shares not yet acquired; and the refinancing of DW’s existing convertible bonds and unsecured bonds. The remainder provided an additional liquidity cushion.
“Very few deals get to be this size,” said Martin Luehrs, head of EMEA IG acquisition finance at Morgan Stanley. “A classic bridge loan of over €20bn needs to be syndicated; it was clearly critical to get bank liquidity on board – the three banks couldn’t just sit on it.”
The loan was carefully crafted to ensure maximum demand from the bank market with a clear refinancing plan, resulting in a near 100% hit rate.
The refinancing plan included an €8bn rights issue, the issuance of senior and hybrid bonds, and the sale of up to 20,000 units to the State of Berlin and up to 25,000 other units and development projects.
Vonovia quickly reduced the bridge, raising €4bn in bonds in June and €5bn in September and completing the €8bn capital increase in December to cut the bridge to just €3.53bn. The takeover was successfully completed in October.
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