Question-and-Answer Session
Operator
We will now take questions from the telephone line. (Operator Instructions) The first question is from Jimmy Chen of NBS. Please go ahead.
Jimmy Chen – NBS
I just wanted to go to the refinancing. Samir you mentioned the environment had changed significantly. I was wondering if you could share – if you look at the upcoming refinancing that will happen over the course of the net six months based on current discussions what do you see in terms of rates and loan to value?
Samir A. Manji
No doubt the financing world has changed dramatically subsequent to August, 2007 and I’ll begin by stating what most are pretty aware of and that is the CMBS market which are we along with many other real estate based organizations were tapping on for financing or refinancing debt has dried up significantly. There are still one or two players, Merrill being the primary entity out there but even their deal terms don’t compare to where they were even six months ago where we could very easily expect to achieve 80 loan to value with five year rates that would be roughly 130 basis points above the bond yield. Today we’d probably be fortunate to get 75% loan to value and that spread over the equivalent bond yield would be north of 200 basis points.
So, as a result of that one avenue option for financing we are actively involved now in discussions with CMAC where we believe there is overall better value for financing or refinancing debt. Granted it will result in an overall lower ration of financing so perhaps the ability to maximize loan value is compromised but there is a positive side to it and that is the cost of that financing is significantly lower than the alternative. To be more specific we’re probably look at five year term debt at bond yields at a rate of 100 to 110 basis points over the five year bond. Of course, to that we would have to add on the CMAC premium which would probably be 5 to 5.5% of the loan amount and that gets capitalized on to the overall debt.
Jimmy Chen – NBS
And the loan to value I guess compare it to the kind of loan to value you use to get on the CMBS, what would be the equivalent loan to value.
Samir A. Manji
That’s an interesting one and I mean the reality is CMAC does their own underwriting criteria. They’ll take an appraisal, they’ll change the factor applied, they’ll change the cap rate and so we anticipate when all is said and done if you want to try to compare apples-to-apples-to-apples where the CMBS might get a 75% loan to appraised value, using that same appraised value the CMAC option may be 70% or 72%. Now, CMAC will say its 85% loan to value but again, recognize they are changing what the value is based on their own underwriting process. So, if I just compare apples-to-apples with the same initial appraisal it will probably take us somewhere in the low 70s as far as ration.
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