$1b CDO puts Gramercy Capital to top of the class.

Gramercy Capital Corp. announced the closing of a $1 billion Collateralized Debt Obligation.

Gramercy used the majority of proceeds from the issuance of CDO II to retire outstanding borrowings under existing secured repurchase agreements. The remainder of the proceeds will be used to fund additional investments.

Hugh E Hall, chief operating officer of Gramercy Capital Corp., commented, "Our second CDO issuance in 13 months leaves Gramercy with approximately $2 billion of highly-flexible, cost-efficient, term financing which improves Gramercy's ability to directly originate a wide variety of investments, and enhances Gramercy's leveraged returns on equity.

"We believe the market-leading subordination levels and extremely efficient pricing reflect investor affirmation of Gramercy's emergence as a best-in-class commercial real estate lender."

CDO II is expected to further reduce Gramercy's weighted average cost of debt capital, enhance Gramercy's ability to offer a broader array of commercial mortgage finance solutions to its borrowers, and improve its leveraged returns on equity capital.

CDO II securities consist of $903.75 million of bonds rated AAA through BBB- that were purchased by institutional investors, plus $38.75 million of non-investment grade bonds and $57.5 million of preferred equity and equity, all of which was retained by Gramercy. At issuance, the weighted-average interest rate of the investment grade securities was three-month LIBOR plus 36.95 basis points, excluding transaction costs. Bonds issued by CDO II pay interest on a quarterly basis in October, January, April, and July.

CDO II matures in 2041, and provides for a five year reinvestment period during which Gramercy can utilize the proceeds of loan repayments to finance new investments. Bonds issued by the Trust have expected average lives ranging from 5.49 to 8.03 years.

The five-year reinvestment feature of CDO II permits Gramercy to originate and finance new investments as first-generation loans are repaid or sold.

The aggregate outstanding principal balance and book value of the initial debt investments included in the trust were $819.7 million and $813.7 million, respectively. Gramercy has a ramp-up period of 270 days from closing during which it can contribute up to $180.3 million of additional assets. GKK Manager LLC, will serve as Collateral Manager for the CDO. GKK Manager LLC is a majority-owned subsidiary of SL Green Realty Corp.

Gramercy will treat the transaction as a financing and thus consolidate on its balance sheet and statement of operations all of the assets, liabilities, income and expenses of the CDO II issuer.

The joint book-runners, co-lead managers and co-structuring agents were Wachovia Capital Markets LLC, and Goldman, Sachs & Co. The co-managers were Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and WestLB, AG.