Market updates and sector developments

Groundbreaking cannabis CMBS closed
Pelorus Capital Group has closed PCG 2023-1, the first-ever securitisation backed by cannabis-linked real estate assets. The firm retained a third of the US$70m offering, selling US$45m of bonds, which it says attracted a range of institutional investors and hedge funds that were “drawn to the high yield and growth of the businesses”. The single-tranche CMBS is floating rate over one-month SOFR.

“Most industry insiders, lenders and investors believed securitisation would never happen in the cannabis sector without a change in legislation,” comments Dan Leimel, ceo of Pelorus Capital Group and manager of the Pelorus Fund. “We couldn’t be prouder to prove them wrong. This first-of-its-kind offering is a significant milestone in the progression of our business plan, which will provide Pelorus with advantageous economic and structural features, empowering the company’s continued growth with or without legislative action.”

Pelorus is a leading provider of commercial real estate loans for the cannabis sector, operating flexible acquisition and bridge lending programmes. The Pelorus Fund is a private mortgage REIT that offers a range of transactional solutions to address the diverse needs of real estate investors and portfolio managers.

The firm expects to return to the market later this year with additional securitisation issuances. Performance Trust served as the sole book runner for its debut offering, while Cadwalader represented the issuer.

In other news…

Aon, Vesttoo embroiled in LOC controversy
ILS platform Vesttoo is laying off a significant number of staff, believed to represent 75% of its workforce, in the wake of a controversy over fraudulent letters of credit used as collateral by investors in at least two transactions structured by the firm. The move aims to “solidify the foundation of the company and reassure the industry”, with its leadership returning its focus to core services.

Vesttoo says it is conducting a rigorous internal and external analysis of the events leading up to the first report of a fraudulent LOC. The firm has engaged a risk, audit and compliance expert and external attorneys to advise it throughout this process.

Meanwhile, Aon has disclosed that it is facing legal challenges from some clients and counterparties, for whom it provided brokerage services in transactions collateralised by the fraudulent LOCs. The firm intends to vigorously defend itself against any claims and seek recourse against third parties where appropriate.