Developers Diversified: TALF Capital Raise Helps

| About: DDR Corp. (DDR)

Good news for DDR and the CMBS market. DDR has announced their TALF eligible CMBS deal.

This should help DDR with their capital raising program as it follows their equity raise through BNY. While it will increase secured debt and reduce unencumbered assets, they have the head room under their debt covenants and this shouldn't push the limits. Unfortunately for unsecured investors, this does encumber some of their best assets.

As for the CMBS market, the demand for the deal was strong, strong enough to tighten the deal in from initial price talk of swaps +175 to swaps +140. As well, the initial use of TALF in the ABS market opened that market to non-TALF players (real money guys).

As for the capital structure, while there has been a significant rally across the structure, the preferreds (which are cumulative) and the senior debt are still somewhat attractive, although the train has mostly left the station.

Here's the news:

Goldman Sachs (NYSE:GS) has launched a $400 million CMBS transaction that would fund a loan it provided to Developers Diversified Realty Corp. last month.

The transaction, DDR I Depositor LLC Trust, 2009-DDR1, is the first new-issue CMBS transaction that would be eligible for financing under the federal government's Term Asset-Backed Securities Loan Facility, or TALF.
The CMBS deal's collateral is backed by 28 shopping centers with 6.1 million square feet in 19 states, with the heaviest concentrations in Kansas, at 13.6 percent, New Jersey, at 11.1 percent and North Carolina, at 8.8 percent. The properties are 91.8 percent occupied by more than 500 tenants, with the largest being Walmart (NYSE:WMT), which occupies 10.3 percent of the portfolio. Other big tenants include Lowe's (NYSE:LOW), in 4.2 percent of the space, Home Depot (NYSE:HD), in 3.7 percent and Bed Bath & Beyond (NASDAQ:BBBY), in 2.5 percent.

The transaction, rated by S&P, Fitch and Moody's (NYSE:MCO), has been divided into three tranches, with the largest, AAA/Aaa class having a balance of $323.5 million. The other two classes are rated AA/Aa2 and A/A2.

Moody's has calculated a 1.52x debt-service coverage level and 65.2 percent loan-to-value ratio,

S&P has pegged DSCR at 1.48x and LTV at 64.31 percent.

Fitch has a 1.44x DSCR and 62.4 percent LTV.

The collateral loan has a five-year term and amortizes over a 30-year schedule. Wells Fargo Bank is master and special servicer. Citigroup is co-manager.
Underwriter Goldman Sachs lowered yield premiums from earlier guidance levels of 1.6 to 1.75 percentage points, due to the strong buyer interest, the report added.

Disclosure: Long DDR preferreds.