CC and Camerons in £335.5m retail deal

Clifford Chance and CMS Cameron McKenna blazed new trails in financing with the £335.5m securitisation of part of J Sainbury's property portfolio.

The securitisation is a twist on traditional sale and leaseback deals carried out by the likes of House of Fraser or Tesco. Sainsbury's keeps control of the 16 properties and cuts its tax bill.

Other retailers are likely to follow suit as commercial pressures force them to make the most of their fixed assets.

CMS Cameron McKenna partner Nick Brown says: “Not only does the securitisation unlock some of the value from the company's property portfolio, it will also bring greater certainty to the organisation's financial planning.”

The deal fixes Sainsbury's rent to rise by 1 per cent a year for the life of the 23-year contract.

The properties were acquired by a special purpose vehicle created by arranger Morgan Stanley Dean Witter. The purchase was financed through a 23-year bond secured on rental payments. Financing costs were less because the special purpose vehicle does not have to pay corporation tax.

Sainsbury's bonds are rated A1/A – the same as the supermarket itself – and part-amortise so that the special purpose vehicle will pay off a principal amount of £170m at the end of the term. It will be raised by selling the properties to third parties or back to the retailer.

The structure also allows Sainsbury's to substitute properties or develop the premises at no additional rent.

Paul Severs, a partner at Clifford Chance, says: “This is a landmark deal. The transaction opens the door for other corporates with sig-nificant real estate assets to access the capital markets utilising securitisation techniques.

“We are already looking at a number of similar transactions.”