21st Jan 2005 10:58
British Land Co PLC21 January 2005 21 January 2005 BRITISH LAND PLANS £2.1 BILLION BROADGATE REFINANCING Additional £500 million raised, interest costs reduced by £12 million per year Group debt maturity extended from 13.8 to 16.6 years The British Land Company PLC ("British Land") announces plans for a majorrefinancing of its 4 million sq ft Broadgate Estate in the City of London, EC2(the "Proposed Transaction"). The proposed new financing is expected to amountto £2.073 billion(1) at a weighted average interest rate of approximately 5.1%,significantly below the net initial yield on the Estate of 6.0%. Background The Broadgate Estate was first securitised in 1999 through the issue of £1.540billion bonds at a funding rate of 6.1%. Since that time, the bonds have beenamortised out of the surplus income of the Estate, reducing the amountoutstanding to £1.294 billion. In addition, British Land has purchased furtherproperties such that it now owns the entire Broadgate Estate. The Estateprovides over 4 million sq ft (370,000 sq m) of prime space on a 30 acre (12hectare) site located in the heart of the City. As part of the Proposed Transaction, four further properties, Exchange House,135 Bishopsgate (currently subject to its own standalone securitisation), 1Appold Street and the newly developed 10 Exchange Square will be added to thesecurity pool, which will then comprise all 15 commercial properties of theBroadgate Estate. Effect on Existing Bondholders Fixed rate bondholders will receive new bonds, secured on the enlarged Estateand issued at current market fixed coupons, with a compensating increase innominal value of approximately £129 million to reflect the lower interest rate. Bondholders will gain from a more diverse security pool and tenant base, as wellas greater liquidity as a result of the larger number of bonds in issue. Theywill also receive a fee. Floating rate bonds will be redeemed in cash. Effect on British Land(2) British Land will raise £500 million of additional long-term funding from therefinancing, which will contain improved prepayment provisions. This will beused to pay down other group debt. The refinancing will reduce ongoing interest costs by approximately £12 millionper year as the new financing will be at the attractive rate of 5.1%. British Land will incur a pre-tax exceptional charge of £178 million, mainly dueto the difference between the redemption value and book/nominal value of itsexisting Broadgate debt. Against this, its FRS 13 disclosure (the extent bywhich the market value of debt and derivatives exceeds book/nominal value) willreduce by £170 million. There will thus be virtually no effect on British Land'sNNNAV, "triple net" asset value, that is, broadly, net asset value ("NAV") lessthe FRS 13 disclosure and less contingent capital gains tax. NAV will bereduced by 24p per share. The weighted average maturity of the Broadgate debt will be extended from 16.4to 19.8 years. In consequence, the weighted average maturity of British Land'sentire group debt will rise from 13.8 to 16.6 years, and its weighted averageinterest cost will decline from 6.5% to 6.1%. The Proposed Transaction, which is subject to the approval of holders of eachclass of the existing fixed rate bonds, is expected to complete in early March2005. Commenting on the Proposed Transaction, Nick Ritblat, a director of BritishLand, said: "This major refinancing of the Broadgate Estate has been approved by a SpecialCommittee of the ABI representing 50% of the fixed rate bonds. It offerssignificant benefits to current holders of Broadgate bonds, to British Landshareholders and to its unsecured lenders. For bondholders the new financing will be fully secured on a broader and morediverse collateral pool of Broadgate's prime assets and the new bonds areexpected to have greater liquidity. For shareholders there is improved financing flexibility and a reduced interestcharge going forward. For unsecured lenders the pro forma ratio of unsecured debt to unencumberedassets will decrease from 40% to 29%." Notes: (1) Throughout this announcement, the nominal value and coupons of the New Bonds are stated based on market pricing at the close of business on 19 January 2005. (2) Throughout this announcement, the financial effects of the ProposedTransaction on British Land are stated on a pro forma basis as though it hadcompleted on 30 September 2004 assuming the number of shares in issue as at thatdate and using the assumed nominal value and coupons of the New Bonds asdescribed in note (1) above. The actual financial effects, including the nominalvalue and coupons of the New Bonds issued and the accounting charge that will beincurred by British Land, will be determined by interest rates on the PricingDate. The Proposed Transaction Broadgate Financing PLC, a wholly owned subsidiary of British Land, is proposingto issue new bonds totalling approximately £2.073 billion (the "New Bonds")secured on the Estate and the existing £1.294 billion bonds issued by MorganStanley Mortgage Finance (Broadgate) PLC (the "Existing Bonds") are proposed tobe redeemed. Under the Proposed Transaction, which is subject to the approval of holders ofeach class of the existing fixed rate bonds: • British Land will be contributing four additional properties from theBroadgate Estate (Exchange House, 135 Bishopsgate, 1 Appold Street and 10Exchange Square) to the security pool of the existing securitisation structure.This will allow British Land to raise an additional £650 million of financing atattractive rates, comprised of £500 million of fixed rate bonds and £150m offloating rate bonds. The additional financing will be used to repay otherBritish Land group debt, including £115 million currently secured against 135Bishopsgate. • The Existing Bonds will be refinanced as follows: - £834 million of Existing Bonds with fixed rate coupons (the "ExistingFixed Rate Bonds") will be redeemed at the applicable redemption price togetherwith an early redemption fee. Subject to certain exceptions, the redemptionprice will be settled by delivery to the holders of new fixed rate bonds ofBroadgate Financing PLC (the "New Fixed Rate Bonds") issued at current marketcoupons with a compensating increase in nominal value of approximately £129million so as to provide the same yield to maturity as the Existing Fixed RateBonds. Accrued interest will be paid in cash. In addition, holders of theExisting Fixed Rate Bonds ("Existing Fixed Rate Bondholders") will receive anearly redemption fee payable in cash in an amount equal to 0.6% of the currentnominal principal amount of their Existing Fixed Rate Bonds (the "EarlyRedemption Fee"). Each class of the New Fixed Rate Bonds is expected to beassigned ratings equivalent to the existing ratings on the corresponding classof Existing Fixed Rate Bonds. - The remaining £460 million of the Existing Bonds which have floatingrate coupons (the "Existing Floating Rate Bonds") will be redeemed in cash onthe interest payment date falling due on 5 April 2005 in accordance with theirexisting terms. The Existing Floating Rate Bonds will be redeemed out of theproceeds of new floating rate bonds proposed to be issued by Broadgate FinancingPLC. • The New Bonds will be fully secured and further modifications will bemade to the covenant and security packages appropriate to a fully securedstructure in line with current rating agency requirements. The New Fixed RateBonds will also provide for early redemption at the option of the issuer at anamount determined by reference to the redemption yield on the appropriateEuropean Investment Bank bond. Following the Proposed Transaction, it is expected that the total nominal valueof the outstanding debt secured on the Estate issued by Broadgate Financing PLCwill be approximately £2.073 billion. The actual amount will depend on the finalpricing determined by reference to interest rates on a date near the date ofcompletion (the "Pricing Date"). Morgan Stanley Mortgage Finance (Broadgate) PLC has today published a ConsentSolicitation Document (containing a Preliminary Offering Circular in respect ofthe New Bonds) setting out proposals to the Existing Fixed Rate Bondholders (the"Proposals") and setting out terms for the New Bonds. The Consent Solicitation Document contains notices convening meetings of eachclass of the Existing Fixed Rate Bondholders for 14 February 2005 to considerand, if thought fit, approve Extraordinary Resolutions to effect the Proposals.Subject to the Proposals being approved and the conditions specified in theConsent Solicitation Document, Existing Fixed Rate Bondholders who deliver validvoting instructions together with valid certificates of eligibility (which arenot subsequently revoked or withdrawn) before 5.00 pm on 7 February 2005 will beentitled to receive a further fee (in addition to the Early Redemption Fee)payable in cash in an amount equal to 0.4% of the current nominal principalamount of their Existing Fixed Rate Bonds (the "Early Solicitation Fee"). Theexpiration date for Existing Fixed Rate Bondholders to submit completed votinginstructions and eligibility certificates in order to vote at the meetings is 10February, 2005. Assuming the Proposals are approved, the Proposed Transactionis expected to complete in early March 2005. Financial impact and Rationale for British Land Under the Proposed Transaction, British Land will be raising over £2 billion offinancing secured on the Estate in a single enlarged securitisation structurewith improved prepayment provisions and sufficient flexibility to address itsbusiness needs going forward. The contribution of further properties to thesecurity pool will enable British Land to raise an additional £650 million offinancing from the enlarged securitisation structure at attractive rates. Afterrepayment of £115 million of debt currently secured against 135 Bishopsgate, thecosts of closing out existing hedging instruments and payment of transactioncosts, the net additional amount of financing raised will be approximately £500million. The transaction is being proposed following recent changes to the termsin the existing unsecured debt of British Land which allow the funding structurefor the Estate to be simplified, reducing costs and producing advantages forboth bondholders and British Land. If approved, the Proposed Transaction will: • reduce the weighted average cost of all debt secured on the Estatefrom the current 6.2% to approximately 5.1%, a level which is significantlybelow the net initial yield on the Estate of 6.0%(3); • reduce British Land's future interest charge by approximately £12million per year; • reduce the weighted average cost of British Land's group debt on a proforma basis from 6.5% to approximately 6.1%; and • extend the weighted average maturity of British Land's group debt on apro forma basis from 13.8 years to 16.6 years. (3) Excluding 10 Exchange Square which was recently completed and is valued onan equivalent yield basis due to vacant space. Hedging instruments associated with the Existing Bonds and other existing debtto be refinanced under the Proposed Transaction will be closed out and newhedging arrangements put in place. The Proposed Transaction, if approved and completed, will result in British Landincurring an exceptional accounting charge against pre-tax profits in the yearending 31 March 2005 of approximately £178 million. The charge results from anumber of factors: (£ million)Difference between redemption value and book/nominal 129value of existing Broadgate debt Write back of debt issue costs previously deducted from the 22principal amount of debt recorded under FRS 4 Net costs of closing out the existing hedging instruments 19associated with the Existing Bonds and other debt to be refinanced under the Proposed Transaction Early Redemption Fee and Early Solicitation Fee (4) 8 Total 178 (4) The Early Solicitation Fee is assumed to be payable to all Existing FixedRate Bondholders, though the actual amount will depend on the number of suchbondholders submitting their voting instructions prior to 7 February 2005. Excluding the one-off charge, the Proposed Transaction is expected to result ina recurring annual positive impact on pre-tax profits of approximately £12million. After tax, the corresponding annual impact on earnings is expected tobe approximately £8 million, equivalent to approximately 1.5 pence per share. The impact of the exceptional charge will be to reduce net asset value ("NAV")by £125 million, equivalent to 24 pence per fully diluted share and 2.3% ofBritish Land's fully diluted adjusted NAV per share as at 30 September 2004. (5) (5) Adjusted net asset value per share as at 30 September 2004 of 1,049 pence,stated after adding back the £113.6 million capital allowance effects of FRS 19and the £82.9 million surplus on development and trading properties. Based on market prices at the close of business on 19 January 2005, the ProposedTransaction would result in a reduction in the difference between the market andbook values of debt and derivatives disclosable in British Land's group accountsunder FRS 13 of £170 million, equivalent to 23 pence per share after tax. Theequivalent difference between market and book values disclosed in British Land'sinterim accounts as at 30 September 2004 was £138 million, equivalent to 32% ofthe total difference as at 30 September 2004. As a result of this there will bevirtually no effect on British Land's 'triple net' asset value (NNNAV).(6) (6) NNNAV is equal to adjusted net asset value less the post tax differencebetween the market and book values of debt and financial instruments disclosableunder FRS 13, less the unprovided tax that would arise on disposing of BritishLand's group properties, after available tax relief but without recourse to taxstructuring, net of negative goodwill. Pro forma gearing will increase from 90% to 96% as a result of thecrystallisation of the FRS 13 mark to market value of the debt and derivativesbeing refinanced under the transaction. The pro forma ratio of unsecured debt tounencumbered assets will decrease from 40% to 29% as the result of repayingunsecured debt out of the proceeds of the transaction. Benefits for Existing Fixed Rate Bondholders The Proposed Transaction offers a number of benefits to the Existing Fixed RateBondholders including: • the security pool will be enlarged to 15 properties (compared to 11properties currently), providing increased diversity and following enlargementwill comprise the entire built Estate; • the new buildings will add further high quality tenants, increasingtenant diversity; • the New Bonds will benefit from a fully secured structure; • Existing Fixed Rate Bondholders will have the opportunity to purchaseadditional fixed rate bonds from the new issuance of £500 million; • liquidity is expected to increase as a result of the increase in theaggregate issue size, with the total value of outstanding fixed rate bondsincreasing by approximately 52%; and • by receiving New Fixed Rate Bonds at market coupons and increasednominal value to provide the same yield to maturity, Existing Fixed RateBondholders will obtain security over the premium to nominal value at which theExisting Fixed Rate Bonds are trading. In addition, Existing Fixed Rate Bondholders will receive the Early RedemptionFee and have the opportunity to receive the Early Solicitation Fee whichtogether amount to 1.0% of the current nominal principal amount of theirExisting Fixed Rate Bonds. A Special Committee of the Association of British Insurers, representingapproximately 50% by nominal value of the Existing Fixed Rate Bonds, hasconsidered the proposals. The members of the Special Committee have indicatedthat they find the proposals acceptable, that they intend to vote in favour ofthe proposals in respect of their holdings and that they will be inviting otherABI members to consider a similar course of action. Indicative terms of the Proposals Under the Proposals, the yield at which the Existing Fixed Rate Bonds will beredeemed will be equal to the sum of the relevant Benchmark Reference SecurityYield on the Pricing Date and the applicable quarterly fixed spread as stated inthe table below (the "Redemption Yield"). Subject to certain exceptions, theredemption price will be settled by delivery to the holders of New Fixed RateBonds with a coupon equal to the quarterly equivalent of the Redemption Yield.Existing Fixed Rate Bondholders who are not able to confirm that they areeligible to receive the New Fixed Rate Bonds will be redeemed, at the discretionof Morgan Stanley Mortgage Finance (Broadgate) PLC, in cash. Indicative terms of the Proposals to Existing Fixed Rate Bondholders based onyields on 19 January 2005 are summarised in the table below. Class Existing Existing Final Benchmark Redemption New New Nominal Coupon Maturity Reference and Nominal Coupon Security new issue (1) (1) spread A2 £284m 5.927% 2031 8's of 2021 40 bps £312m 4.929% A3 £150m 5.912% 2033 6's of 2028 40 bps £173m 4.853% B £225m 6.287% 2033 6's of 2028 55 bps £265m 5.001% C2 £175m 6.651% 2038 6's of 2028 65 bps £213m 5.099% £834m 6.173% (2) £963m 4.973% (1) Illustrative pro forma based on market pricing at the close of business on19 January 2005. (2) Average cost of debt weighted by nominal value. (3) Final pricing will be determined by reference to yields on the relevantBenchmark Reference Securities on the Pricing Date. (4) Existing Fixed Rate Bondholders will also receive accrued interest payablein cash. Enquiries: The British Land Company PLCJohn Weston Smith Tel.: +44 20 7467 2899Nick Ritblat Tel.: +44 20 7467 2890 Morgan StanleyMay Nasrallah (for matters relating to the Tel.: +44 20 7677 3309Consent Solicitation) Tim Drayson (for all other matters) Tel.: +44 20 7677 7046 FinsburyEdward Orlebar Tel.: +44 20 7251 3801 Important notice The contents of this press release, which have been prepared by and are the soleresponsibility of British Land, have been approved by Morgan Stanley & Co.International Limited solely for the purposes of section 21(2)(b) of theFinancial Services and Markets Act 2000. Morgan Stanley is acting for BritishLand and Morgan Stanley Mortgage Finance (Broadgate) PLC in connection with theProposed Transaction and no one else and will not be responsible to anyone otherthan British Land and Morgan Stanley Mortgage Finance (Broadgate) PLC forproviding the protections offered to clients of Morgan Stanley nor for providingadvice in relation to the Proposed Transaction. The address of Morgan Stanleyis 25 Cabot Square, Canary Wharf, London E14 4QA. This press release does not constitute an offer to sell or the solicitation ofan offer to buy securities of Broadgate Financing PLC. Nothing in this pressrelease constitutes advice on the merits of buying or selling a particularinvestment or exercising any right conferred by the securities described. Anyinvestment decision as to any purchase or securities referred to herein must bemade solely on the basis of information contained in the final form of theOffering Circular and no reliance may be placed on the completeness or accuracyof the information contained in this press release. Securities are not suitable for everyone. The value of securities can go downas well as up. You should not deal in securities unless you understand theirnature and the extent of your exposure to risk. You should be satisfied thatthey are suitable for you in the light of your circumstances and financialposition. If you are in any doubt you should consult an appropriately qualifiedfinancial advisor. Notes to editors: The Broadgate Estate is the premier City of London office estate. It comprisesover 370,000 sq m (4.0 million sq ft) of office, retail and leisureaccommodation on a 12 hectare (30 acre) site adjoining Liverpool Street stationwith mainline and underground rail connections. The assembly of the entireestate into British Land's ownership was completed by the acquisition in March2003 of the virtual freehold interest at 1 Appold Street. Construction of 10Exchange Square, adding a further 15,180 sq m (163,400 sq ft) to the Estate, wasrecently completed in May 2004. Broadgate Estates Limited, a wholly ownedsubsidiary of British Land, manages the estate and maintains the external andcommon areas. Approximately 30,000 employees are based at Broadgate, which formsa distinctive environment for some of the world's largest corporations andleading professional practices, including ABN AMRO, Allianz Dresdner, AshurstMorris Crisp, Barclays Bank, Baring Investment Services, Deutsche Bank, EuropeanBank for Reconstruction & Development (EBRD), F&C Management, Herbert Smith,Lehman Brothers, Royal Bank of Scotland, Societe Generale, Sumitomo Trust, Bankof Tokyo Mitsubishi and UBS. British Land and Morgan Stanley first securitised the Broadgate Estate in May1999 through the issue of £1.54 billion bonds in what was then the largest eversecuritisation of property assets in the United Kingdom. Morgan Stanley & Co. International Limited is acting as the Solicitation Agentand Arranger in connection with the Proposed Transaction. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
British Land