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Cold-storage operator financing acquisition via $2.35B CMBS

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Cold storage warehouse operator Lineage Logistics Holdings is back in the CMBS market after a two-year absence, securitizing new facilities acquired in a multibillion-dollar purchase of another temperature-controlled operator this month.

The $2.35 billion CSMC 2019-ICE4 transaction is backed by a single similarly-sized loan collateralized by 64 temperature-controlled storage, warehouse and logistics facilities which Lineage leases through 26 special-purpose entities in 22 states.

Besides financing the $1.95 billion buyout of Preferred Freezer Services, the transaction will also refinance existing debt, according to presale reports published Tuesday by Moody's Investors Service and Morningstar Credit Ratings.

The transaction is the largest single-borrower, large-loan transaction since the Blackstone Group tapped the CMBS market for a $2.5 billion securitization of a loan backed by 169 industrial properties and two data centers, according to date from Finsight.

The Lineage loan closed one week after Lineage acquired Preferred Freezer Services, a deal that builds out its managed portfolio of storage units to more than 200 facilities with an approximate total square footage of 1.3 billion.

The deal expanded Lineage into the largest operator of cold storage warehouse and logistics facilities in the country.

The $2.35 billion mortgage loan, underwritten May 9 through Column Financial, Bank of America and Morgan Stanley, is secured by the fee and leasehold interests in the units located in several key gateway industrial markets with regional and global distribution clients like Walmart and the meat processor JBS USA.

The loan is also backed by the ownership interests in related personal property and fixtures associated with the units, including refrigeration equipment. However, the newly acquired facilities from Preferred Freezer Services do not serve as collateral for the loan, according to the presale report from Moody’s.

The $2.35 billion, interest-only loan carries a coupon of 1.5% with one-month Libor. Based on an estimated stabilized annual net cash flow of $220.6 million, Moody’s estimates the deal is supported by a debt-to-service coverage ratio of 2.37x.

The deal marks Lineage’s first deal since it securitized 54 facilities in 2017 behind a $1.295 billion loan obtained through Goldman Sachs and JPMorgan Chase. Like the loan two years ago, the loan pays only interest, and no principal, for an initial term of two years but has three one-year optional extensions.

The transaction’s capital stack has six classes of notes – including a $1.08 billion Class A notes tranche with a preliminary triple-A ratings from Moody’s and Morningstar– along with three classes of senior certificates paying only interest. The trust will also issue a $117.6 million Class HRR certificates that will be retained as part of a horizontal risk-retention holding.

Unlike “dry” commercial storage facilities, cold storage units are more rigorously regulated under government rules for food handling and safety guidelines regarding the use of ammonia in refrigeration units, according to Moody’s.

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