A €2.2 billion Spanish property deal brokered by Hugh Osmond’s Sun Capital Partners at the top of the market has been restructured in advance of a possible flotation.
Banks including BNP Paribas, La Caixa and Santander and international hedge funds have agreed to swap €400 million of junior debt for a majority equity stake in a portfolio of about 1,150 Santander bank branches across Spain, according to EuroProperty.
Sources said that after the consensual debt-for-equity swap, Sun Capital’s interest in the portfolio would be diluted, but that the restructuring was needed to stabilise the portfolio’s capital structure in advance of plans to float it as a Spanish real estate investment trust, a tax-efficient vehicle for owning property.
Mr Osmond, a founding investor in PizzaExpress, led the deal to buy the bank branch portfolio in a sale-and-leaseback transaction in 2007, just before Spain’s property market started to teeter. Sun Capital headed a consortium that also included Pearl Group, the insurer that has relaunched as Phoenix Group, TDR Capital Nominees and Drago Capital, a Spanish group.
At the time it was the largest property transaction in Spain. The Santander portfolio generates more than €101 million a year in rent with index-linked rental increases and was bought with €2 billion of debt.
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This included €1.6 billion of senior debt and €400 million of junior debt. The Sun Capital-led consortium invested about €200 million of equity in total.
Since 2007, the Spanish property market has experienced torrid conditions, with values plunging. The portfolio is understood to be valued today at between €1.5 billion and €1.7 billion. The restructuring of the debt is expected to be confirmed as early as next week. All parties declined to comment.