HONG KONG – Allen & Overy has advised Morgan Stanley as the mandated lead arranger of the senior bonds on a bespoke real estate bond financing for a consortium of buyers through its special purpose vehicle, C.H.M.T. Peaceful Development Asia Property Limited. Proceeds of the bonds funded the landmark acquisition of The Center, one of Hong Kong’s prime commercial buildings located in the city’s business district.

The USD4.1bn asset-backed bonds, which comprise of approximately USD3.3bn Tranche A notes and USD800m Tranche B notes, have an 18 month maturity with a 12 month soft non call and a deferrable coupon. These features facilitated the consortium’s objective of quickly paying down the bonds using the proceeds of the re-sale of floors from the tower following the acquisition.

Working closely with Morgan Stanley which led on the deal structuring, the Allen & Overy team developed a highly structured and novel financing solution in order to meet the diverse requirements of the consortium, the seller and investors, as well as the tight deadline for completion of the acquisition. Originally structured as a bank loan, due to investor appetite the deal was restructured into a private placement which was cleared through Euroclear while retaining a covenant package more typical of real estate loans. The hybrid nature of the financing meant that a number of bespoke mechanics had to be engineered during the structuring.  Allen & Overy was drafting counsel for and worked with Morgan Stanley to structure both the Tranche A and Tranche B notes.

Partner Roger Lui said: “This is an unprecedented transaction in the Hong Kong real estate financing market and drew together the expertise across our banking, capital markets, derivatives and structured finance, real estate finance and regulatory practices. As such, our approach was complementary to the Morgan Stanley team and allowed us to deliver seamless advice throughout the deal.”

The Allen & Overy team was led by banking partner Roger Lui and capital markets partner Stephen Miller, with support from senior associates William Kim and Erica Wong, and associate Brian Yu. Partner Charlotte Robins and associate Will Yip provided Hong Kong regulatory advice on the transaction.

A separate team consisting of derivatives and structured finance partner Ross Stewart and counsel James Yao advised Morgan Stanley as the provider of cross currency swaps for both the Tranche A notes and the Tranche B notes.  Capital markets partner Tim Beech and associate Regina Lui advised Bank of New York Mellon as trustee and paying agent for the bonds.

The mandated lead arranger of the Tranche B notes, Hammer Capital, separately appointed its own counsel.