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“The market ate it up,” is how one participant described the WEM transaction on which RBC Capital Markets was the sole lead manager and book-runner. Scotia Capital and TD Securities were also in the syndicate.

WEM placed two bonds: $350-million of 10-year interest only securities that pay 4.309%; and $550-million of 10-year amortizing securities that pay 4.056%. The amortization term is 30 years resulting in a weighted average amortization term of 23.2 years.

Both bonds were secured by the issuer’s interest in the WEM, a 12-storey monster (4.2 million square feet) that’s home to 475 retail stores (that pay a collective $157-million in rent) and the second largest hotel in Edmonton.

Both classes of bonds were rated A by DBRS, in part because the issuer, a “bankruptcy-remote single-purpose entity,” has a so-called debt-service ratio of 1.55 times. As such, according to DBRS “recourse for the bondholders is limited to the issuer’s ownership in the project.”

The Ghermezian family owns the mall.

That A rating, which came with a stable trend, was helped by its “view of the quality and location of the project, the diversified tenant profile and favourable economic conditions in Alberta and Edmonton,” noted DBRS in a ratings report. Weighing against those positives is that most of the leases (82%) will expire before the bonds’ maturity date and that “generally current-in-place rents are modestly below market.”

The bonds issued by WEM this time round are actually the second first mortgage bonds it has issued. Earlier it placed $600-million of 10-year bonds that come due Sept. 11 2016. Those bonds came with a 5.66% coupon were unrated by DBRS. Indeed the proceeds from that current financing will be used to defease the earlier financing, meaning that the amount owing ($554.6 million) will be invested in AAA-rated government bonds. The rest of the proceeds will be used for general corporate purposes.

Of late, the other large single building first mortgage bond was done for Scotia Plaza in downtown Toronto. On that deal, done in May 2012, the borrower raised $650-million at 3.45% for seven years at a cap rate of 5.2% cap rate. On WEM’s financing, DBRS used a cap rate of 8.05%.