Home Depot, Inc.

John Blomfield  structured and arranged a $15,500,000 permanent Credit Tenant Lease (CTL) transaction for the refinancing of a Home Depot retail store.

Background. Seven years ago John Blomfield signed a 50-year lease with one of the nation’s largest home improvements stores Home Depot. The property was originally financed with  bonds for approximately $6,000,000 with a ten year maturity.

Challenge.  With less than three  years remaining  before loan maturity, we where concerned about refinance risk and wanted to take advantage of the favorable interest rates in the current market. We also wanted to extract expansion capital. The existing loan included a traditional make-whole pre-payment provision  and the potential penalties associated with refinancing a few years before maturity would preclude refinancing at the current attractive rates.

Financial Solution. Blomfield structured and his underwriter placed a 100% LTV non-recourse CTL loan that not only locked in attractive long-term, fixed-rate financing, but generated net proceeds of over $10,000,000 above the cost of loan prepayment (including principal and penalties).  The underwriter analysis demonstrated that the additional proceeds generated by a full amortizing 30-year CTL loan (i.e. only a portion of the remaining 42-year lease term) outweighed the additional cost of the original loan’s make-whole provision. Also there was no debt coverage required. The  30-year term avoided phantom income and still left the asset in a position for future disposition. Additionally, the underwriter negotiated a 90-day extension to the closing period that reduced the cost of the pre-payment penalty and a loan assignment provision that offered the borrower future flexibility.

Result. The CTL analyzed refinancing alternatives for the property and executed a CTL non-recourse refinancing with favorable, long-term rates that retired the existing loan and eliminated interest rate risk for the balance of the lease term.  The loan proceeds exceeded the cost of existing debt repayment and associated prepayment penalties generating current investment capital and future cash flow for the project.