2nd UPDATE: Tesco Plans Benchmark Commercial Mortgage Bond

29th Jun 2010 15:44

(Adds detail) By Mark Brown Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. retailer Tesco PLC (TSCO.LN) is planning to issue a sterling-denominated benchmark bond, backed by a commercial mortgage loan, a banker involved in the deal said Tuesday. The collateral for the loan is the leasehold interest in 41 U.K. commercial properties, all of which are let to Tesco-related entities, according to a ratings report from Moody's Investors Service, which has assigned a provisional A3 rating to GBP950.15 million of the planned bond issue. However, the banker said the final size of the deal has yet to be determined. Goldman Sachs Group Inc. and HSBC Holdings PLC are acting as co-arrangers for the issue which, according to the Moody's, will mature in April 2040. The deal is expected to price late Tuesday, or Wednesday. The bonds will be issued by a vehicle called Tesco Property Finance 3 PLC. Tesco sold similar bonds in June and September last year, raising just over GBP995 million. These deals attracted attention in the market as they were among the first new U.K. commercial mortgage-backed securities to be sold to investors since the start of the financial crisis. The financial crisis was itself caused by the collapse of the market for bonds backed by mortgage or other loan repayments. But because all the properties are let to Tesco, and because Tesco guarantees the leases, some market participants said that this kind of bond is not a typical CMBS issue, but should be thought of as a structured corporate bond. Fitch has also assigned the bonds an expected A- rating, which it said is "fully credit-linked to the rating of Tesco PLC." -By Mark Brown, Dow Jones Newswires; + 44 (0)207 842 9485; [email protected] (END) Dow Jones Newswires June 29, 2010 10:44 ET (14:44 GMT)