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BERLIN-UK private equity firm Terra Firma will shortly refinance the debt used to buy its German property interests with the largest bond backed by commercial mortgages ever issued in Europe. The firm hopes to raise euro 5.4 billion ($6.8 billion) to refinance the cost of buying a portfolio of 150,000 flats.

German Residential Asset Note Distributor, or Grand, as the vehicle issuing the bonds is called, set the terms on Monday for its euro 5.4-billion ($6.8-billion) deal. This is the latest in a string of German CMBS linked to large portfolios of residential flats and houses sold by industrial companies and local authorities.

The Terra Firma deal is not a CMBS bond in the conventional sense. Traditionally these bonds are backed by one or two big loans to finance office blocks or retail space whereas the German multifamily deals tend to draw on a wider source of loans. The multifamily deals have been helping to prop up the CMBS market this year, which last year doubled in size. A report by Standard & Poor says the increase in multifamily deals has pushed German CMBS issuance so far this year to euro 6.2 billion ($7.8 billion) and that there was another euro 11 billion ($6.8 billion), including the Terra Firma deal, in the pipeline. Last year, German CMBS issuance amounted to a total of euro 5.4 billion ($6.8 billion).