June 14, 2010Press Release

Michael Best & Friedrich Closes $31 Million Loan as Part of $716 Million Financing

In these times of frozen financial markets borrowers are facing an unprecedented combination of depressed real estate values, undercapitalized banks and relentless regulatory scrutiny for real estate loans.

Despite this environment, Michael Best & Friedrich LLP was able to assist one of its clients in securing some key financing. On June 10, 2010, JP Morgan Chase received a AAA rating from Moody’s and Fitch on $608 million of a $716 million Collateralized Mortgage Back Security (CMBS). This $716 million CMBS financing is one of the first in nearly two years and is backed by 36 commercial mortgage loans secured by 96 properties located in 31 states. Michael Best’s client, the Helgesen Group, owns six of the properties and borrowed $31 million of the $716 million CMBS issue. This loan to Michael Best’s client, which is at a fixed rate for five years, provides the Helgesen Group with the capacity to thrive in the current real estate market.

CMBS financings (or its predecessor known as “Collateralized Mortgage Obligations”) have been a financing technique since the mid-1980s but have not been available for the past few years due to the frozen financial markets. In a CMBS financing, the issuer of the CMBS aggregates a number of loans (for example, mortgage loans in the $10 million to $50 million range) and then issues public debt securities where the publicly issued debt securities are secured by the underlying mortgage loans. Often, the issuer will take the regular principal and interest payments made by borrowers on the mortgage loans and separate them into different payment streams, creating several bonds that repay invested capital at different rates.

“Given the current environment, the corporate structure and real estate documentation for loans that become part of a CMBS financing must be impeccable due to the high level of scrutiny by rating agencies,” explained Richard Latta, partner at Michael Best who chaired the team on the Helgesen transaction. “It requires a team capable of implementing the complex structure required by the rating agencies. Michael Best is uniquely suited with the capabilities to handle the sophisticated corporate, commercial lending and real estate aspects of this transaction.”

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