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Specialised property structures seeking refinancing in today's tight market have only two options
So-called "opeo- pro pco" deals became popular in the 2004-07 boom as a means for businesses that own property to leverage these assets without selling them as they would with a plain vanilla sale and leaseback, the traditional means of extracting the value out of operational real estate.
The opco-propco arrangement separates the property assets from a company's operating business by creating one legal entity, the propco, to hold the property and the another, the opeo, to hold the operating business.
While in a traditional sale and leaseback a third party becomes landlord, in the opco-propco, the propco collects the rent, enabling operational control and management of the property to stay within the opco-propco group.
Although the propco could obtain finance through a mortgage secured on its property, the opeo could also obtain separate corporate debt facilities. The method was used extensively during 2004 to 2007 with banks repackaging some of the propco loans into commercial mortgage backed securities (CMBS) for institutional participation.
A difficulty in refinancing
But that was the boom and clearly circumstances are different now. While the concept is not invalidated by the shift in fortunes or the spectacular failures that have occurred, most legacy opcopropcos are unlikely in their current format to be able to refinance themselves from either banks or the capital markets, according to a report published...