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Timber securitization finds its way into the private placement market

The private placement market - which is currently waiting for a pick up in issuance - was graced with a 144A securitization backed by timber receivables.

Merrill Lynch, along with Morgan Stanley, brought special purpose vehicle TimberStar, a subsidiary of New York-based iStar Financial, a publicly traded real estate investment trust (REIT), to the private placement market last week.

The $800 million acquisition financing is a securitization of timber, sources said. In April, TimberStar acquired 900,000 acres of timberland in Arkansas, Louisiana and Texas from International Paper for $1.17 billion.

The properties are separated into three Forest Management Areas (FMAs): the Texarkana, Texas FMA; the Nacogdoches, Texas FMA; and the Shreveport, La. FMA.

The highly structured transaction will have six tranches, all carrying the same final legal 30-year maturity and 10-year soft maturity, a source familiar with the deal said.

The $400,000 A fixed tranche carries an Aaa rating; the A floating tranche, the amount is yet to be determined, carries an Aaa rating; the B $80,000 tranche carries an Aa2 rating; the C $80,000 tranche carries an A2 rating; the D $80,000 tranche carries a Baa2 rating; the E $30,000 tranche carries a Baa3 rating; and the F $130,000 tranche carries a Ba2 rating, according to a Moody's Investors Service presale report.

The report cites the quality of the timber portfolio and the manager as well as the existence of a liquidity facility to justify its ratings.

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