Britain is seeing a frenzy of refinancing by some of its biggest property companies taking advantage of strong demand for commercial mortgage-backed securities (CMBS), bonds backed by loans on property.

CMBS issuance in the UK has already hit E11-billion since the start of the year, only a whisker behind the E14-billion for the whole of 2004. Companies are rushing to refinance to take advantage of cheap borrowing rates through these vehicles, which can offer lower interest rates than conventional bank loans.

Capital & Regional is close to launching £1-billion of new secured bonds to finance its Mall Fund, in the wake of the £2.1-billion refinancing of British Land's Broadgate complex in London and three large deals by Liberty International worth a total of £1.9-billion.

There has also been a £430-million refinancing of some Scottish properties owned jointly by Land Securities and British Land. Land Securities last autumn carried out a record £2.35-billion refinancing through a hybrid of secured and unsecured bonds.

The trend for such asset-backed loans comes amid record highs for global CMBS, with $32-billion of deals carried out in the first quarter against $19-billion for the equivalent period last year. Some UK companies are moving fast because they think there may only be a brief window of opportunity.

Recent deals have enabled them to issue AAA paper (the lowest risk tranche of debt) at spreads of as little as 14 basis points above seven-year swap rates, a historic low. If long-term interest rates start to rise, as some expect, setting up new CMBS borrowing will become more expensive. However, Neil Lawson-May, joint chief executive of Eurohypo, the property investment bank, forecast rate rises were unlikely to reduce CMBS activity.

Financial Times