ABN AMRO has launched the first public Australian commercial mortgage-backed security (CMBS) this year. Special purpose vehicle Aurora Place Holdings Pty issued the notes which are secured by a loan to the Commonwealth Property Investment Trust, (CPIT) which is ultimately secured by CPIT's leasehold interest on Aurora Place, the underlying collateral.

Aurora Place, currently known as ABN AMRO tower, was completed in October 2000. The main tenants are ABN AMRO, which occupies about 34% of the building, and Minter Ellison, which occupies about 28%.

Fitch cites the concentrated tenant exposure as a concern in its presale report, but says this is mitigated because ABN AMRO has leased a substantial portion of the building for a period exceeding the rated final distribution date. Fitch also explains that the property's prime location in the central business district will allow vacant space to be re-let with little difficulty. At present, 83% of the building is leased, mainly for long-term leases.

The bonds are rated by Moody's Investors Service and Fitch: $150 million, priced BBSW plus 41bp, matures March 30, 2006, rated Aaa/AAA.

Kevin Stephenson, managing director and Asian head of structured credit at Fitch comments: "This is only the second public securitization in Australia that has not been rated by Standard & Poor's. Prior to Fitch's arrival in Australia, S&P dominated the market."

The deal also has a low loan-to-value, which Fitch sets at 32%, and Moody's at 31.7%. This, along with the single tranche structure, helped the deal achieve a triple A rating. "The LTV is low for CMBS globally, but there have been other deals in Australia with low LTVs," said Huxley Somerville, managing director and head of structured finance in Australia. "There have been property trust deals that also have had low LTVs."

CMBS issuance has been relatively low in Australia, but the prospects for an increase in issuance are good. Somerville says: "This building is in the middle of the central business district and makes this a higher profile transaction. It may make people look at CMBS as an alternative source of financing. CMBS will not overtake RMBS, but it could become a sizeable percentage of securitization issuance in Australia."

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