In a rare debt structure, 7 World Trade Center II, LLC, a special-purpose entity, will secure two loans to refund $475 million of Series A and B Liberty revenue bonds, which helped finance the construction of floors 10 through 52 of 7 World Trade Center.
The first loan will come from proceeds of the New York Liberty Development Corp.’s $452.8 million Liberty revenue bond refunding, scheduled to price on Wednesday.
Concurrently with the debt sale, 7 WTC will enter into a separate commercial mortgage-backed security loan of $125 million. Payment on the CMBS loan will be subordinate to payment on the bonds.
Both loans will be secured by a leasehold interest in floors 10 through 52 of 7 World Trade, a 52-story, 1.7-million-square-foot building completed in May 2006.
The Liberty bonds will be offered in three classes: $313 million Class 1, maturing from 2028 to 2044; $108 million Class 2, maturing in 2043; and $31 million Class 3, maturing in 2044.
They are subject to redemption after March 15, 2022, and extraordinary optional redemption upon casualty or condemnation of the building.
The bonds are tax-exempt but as they are backed by commercial real estate, Moody’s Investors Service and Fitch Ratings have assigned structured finance ratings, employing their criteria for CMBS loans.
Moody’s assigned provisional ratings of Aaa, A2 and Baa2 for the Class 1, 2 and 3 bonds, respectively. Unlike ratings for tax-exempt bonds, these address timely payment of interest and ultimate repayment of principal on the bonds, Moody’s said in a presale report.
Principal and interest on the Liberty bonds will be paid semiannually, with the Class 1 bonds receiving payment priority, followed by Class 2 and then Class 3.
Fitch assigned expected AAA, A and BBB ratings to Class 1, 2 and 3, respectively.
Both rating agencies cited the transaction’s lack of diversity as a concern, as it’s secured by a single asset. They list loan amortization as well as the building’s location, asset quality and tenancy as strengths.
The largest tenants are Moody’s Corp. and Wilmer Hale LLP.
Underwriters for the bond sale are lead by JPMorgan. Bond counsel is Winston & Strawn LLP.