18th Jan 2006 14:21
British Land Co PLC18 January 2006 18 January 2006 BRITISH LAND PLANS £750 MILLION SUPERSTORE PORTFOLIO REFINANCING REDUCING GROUP INTEREST COST BY £7 MILLION PER ANNUM The British Land Company PLC ("British Land") announces plans for a refinancingof its existing superstore portfolio (BLSSP) (Note 1) which is securitised through Werretown Supermarkets Securitisations plc. BLSSP will be refinanced bya new simplified securitisation issued by BL Superstores Finance PLC, a wholly owned subsidiary of British Land. The proposed refinancing, which unlocks valuefor both British Land and existing bondholders, is expected to amount to £750million (Note 2) and includes £52 million in new floating rate bonds. The newfinancing is expected to have a weighted average interest rate of approximately4.9%. The refinancing follows on from the success of, and positive investor receptionfor, the similar exercise carried out in March 2005 on British Land's £2 billionBroadgate securitisation. Highlights • Group interest costs reduced by £7 million per annum • Group weighted average cost of debt reduced from 5.87% to 5.70% (Note 3) • Financing costs of BLSSP reduced from 6.75% to 4.93% • Pre-tax exceptional charge of £104 million mainly due to difference between the redemption value and book/nominal value of existing debt • Adjusted NAV reduced by 14 pence per share; NNNAV virtually unchanged • The new simplified structure will provide significant rating improvements for existing bondholders Commenting on the Proposed Transaction, Graham Roberts, Finance Director ofBritish Land, said: "This major refinancing of the Sainsbury's portfoliocontinues our investor friendly positioning, unlocking significant additionalvalue for bondholders and British Land. Bondholders will benefit from asimplified structure and significant rating improvements; for shareholders thereis improved financing flexibility and reduced interest charges going forward.The Proposals have been approved by a Special Committee of the ABI representing34% of the existing fixed rate bonds." Enquiries: The British Land Company PLCGraham Roberts, Finance Director Tel.: +44 20 7467 2948Peter Clarke, Executive Officer Tel.: +44 20 7467 2886 Morgan StanleyCecilia Tarrant, Executive Director Tel.: +44 20 7677 5350Justin Sulger, Vice President Tel.: +44 20 7677 5340 The Royal Bank of ScotlandAndrew Burton, Securitisation Product Manager Tel.: +44 20 7085 8056Colin Lally, Securitisation Director Tel.: +44 20 7085 6668 FinsburyEdward Orlebar Tel.: +44 20 7251 3081 Notes:(1) BLSSP (Funding) PLC ("BLSSP"), a wholly-owned subsidiary of British Land,has issued one tranche of secured and 5 tranches of unsecured notes. The formerare secured on 35 Sainsbury superstores and the latter are guaranteed by thering-fenced British Land subsidiaries that own the superstores. At 4 January2006, BLSSP had £608 million of notes outstanding.(2) Throughout this announcement, the nominal value and coupons of the NewBonds are stated based on market pricing as of 16 January 2006.(3) 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 2005 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 (2) 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. Background The BLSSP financing, funded by Werretown Supermarkets Securitisations plc (the "Existing Bonds"), was issued in June 2001 and subsequently tapped in October2003. The BLSSP portfolio consists of 35 superstores let to J Sainsbury PLC ("Sainsbury's"), located throughout England and Wales. The current portfolio,with one exception described below, has been collateral for the BLSSP financingsince its origination in 2001, and is currently valued at £1.1 billion. Rentalincreases have been achieved on the portfolio including as a result ofextensions to 11 of the 35 superstores. In July 2005, the Selly Oak propertywas substituted by the more valuable and higher-income producing Crawleyproperty. Consistent rental and capital growth in the portfolio since the lasttap issue can also support some further issuance. The Proposed Transaction BL Superstores Finance PLC, a wholly owned subsidiary of British Land, isproposing to issue new bonds totalling approximately £750 million (the "NewBonds") secured on the BLSSP portfolio. The outstanding £608 million of ExistingBonds are proposed to be redeemed. Under the Proposed Transaction, which is subject to the approval of holders ofeach class of the Existing Fixed Rate Bonds (as defined below): • British Land will be moving the BLSSP financing to a simplified CMBSstructure in line with current rating agency requirements and the ratings of thebonds will be de-linked from Sainsbury's credit. The proposed covenant changeswill closely follow those in its Broadgate securitisation, including provisionsfor new tap issuance if the rating condition is satisfied. • The Existing Bonds will be refinanced as follows: • £459 million of Existing Bonds with fixed rate coupons (the "ExistingFixed Rate Bonds") will be redeemed at the applicable redemption price. Subjectto certain exceptions, the redemption price will be settled by delivery of newfixed rate bonds issued by BL Superstores Finance PLC (the "New Fixed Rate Bonds") to the holders of Existing Fixed Rate Bonds. The New Fixed Rate Bonds will be issued with a compensating increase in nominal value of approximately £90 million, calculated at the yield to maturity commensurate with the relevantclass of Existing Fixed Rate Bonds, and with new coupons which are expected tobe higher than the current market for similarly rated securities. Accruedinterest will be paid in cash. The Class A2 bonds are expected to be upgraded 2notches from AA/AA to AAA/AAA, and the Class B2 and B3 bonds are expected to beupgraded 3-4 notches from BBB/BBB- to A/A. • The remaining £149 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 in April 2006 in accordance with theirterms. The Existing Floating Rate Bonds will be redeemed out of the proceeds ofnew floating rate bonds proposed to be issued by BL Superstores Finance PLC (the"New Floating Rate Bonds"). Following the Proposed Transaction, it is expected that the total nominal valueof the outstanding BLSSP debt will be approximately £750 million. The actualamount will depend on the final pricing determined by reference to interestrates on a date closer to the date of settlement (the "Pricing Date"). A Consent Solicitation Document (containing a Preliminary Offering Circular inrespect of the New Bonds) is being published by Werretown SupermarketsSecuritisations plc today setting out proposals to the Existing Fixed RateBondholders (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 to be held on or around 9 February2006 to consider and, if thought fit, approve Extraordinary Resolutions toeffect the Proposals. Subject to the Proposals being approved, and theconditions specified in the Consent Solicitation Document being satisfied or (ifcapable of waiver) waived, Existing Fixed Rate Bondholders who deliver validvoting instructions as required by the Consent Solicitation Document (which,subject as provided in the Consent Solicitation Document, are not subsequentlyrevoked or withdrawn) before 2.00 pm on 1 February 2006 will be entitled toreceive a fee payable in cash in an amount equal to 0.40% of the current nominalprincipal amount of their Existing Fixed Rate Bonds (the "Early Solicitation Fee"). The expiration date for Existing Fixed Rate Bondholders to submit completed voting instructions in order to vote at the meetings is 7 February 2006. Assuming the Proposals are approved, the Proposed Transaction is expected to close in early March 2006. Effect on Existing Bondholders Holders of Existing Fixed Rate Bonds will receive New Fixed Rate Bonds with acompensating increase in nominal value of approximately £90 million, calculatedat the yield to maturity commensurate with the relevant class of Existing FixedRate Bonds, and with new coupons which are expected to be higher than thecurrent market for similarly rated securities. Holders of Existing Fixed RateBonds will also enjoy significant improvements in their credit metrics ascompared to the original issuance in 2001 and the tap issue in 2003. Inaddition, by receiving New Fixed Rate Bonds at an increased nominal value,calculated at current market rates, in the new BL Superstores Finance PLCstructure, holders of Existing Fixed Rate Bonds will gain security for thecurrent mark-to-market premium as well as the potential for increased marketliquidity. A significant benefit to holders of Existing Fixed Rate Bonds is themultiple-notch credit rating upgrades expected to be achieved by moving thestrongly performing superstore portfolio onto a traditional CMBS structurede-linked from Sainsbury's corporate credit rating. The Class A1 and B1 Existing Floating Rate Bonds will be redeemed at par on theinterest payment date falling due in April 2006. The Class M1, C1 and D1Existing Floating Rate Bonds will be issued at current market levels, of which£52 million will represent new incremental debt. Benefits for Existing Fixed Rate Bondholders The Proposed Transaction offers a number of benefits to the Existing Fixed RateBondholders including: • the switch to a structure that is de-linked from Sainsbury's rating,together with a number of other related structural changes, will enable the NewFixed Rate Bonds to achieve ratings higher than those that currently apply tothe Existing Fixed Rate Bonds. As an incentive to Existing Fixed RateBondholders to vote in favour of the Proposals, the New Fixed Rate Bonds will beissued at a discount to where comparable issues with similar ratings are tradingas at today's date; • the switch from a Sainsbury's linked deal to a traditional CMBSstructure will unlock significant value and is also likely to result in some orall of the New Fixed Rate Bonds having less volatility than the Existing FixedRate Bonds; • the issuance of the M1 New Floating Rate Bonds subordinate to the A2New Fixed Rate Bonds and the C1 and D1 New Floating Rate Bonds subordinate tothe B2 and B3 New Fixed Rate Bonds respectively will improve the credit metricsof the New Fixed Rate Bonds when compared with the Existing Fixed Rate Bonds andcontribute to the achievement by the New Fixed Rate Bonds of higher ratings thanthe Existing Fixed Rate Bonds; • the New Fixed Rate Bonds will benefit from a less complex structurethan the Existing Fixed Rate Bonds; • by receiving New Fixed Rate Bonds of an increased nominal amount,calculated at current market rates, Existing Fixed Rate Bondholders will obtainsecurity over the premium to nominal value at which the Existing Fixed RateBonds are currently trading; • the liquidity facility in respect of the New Bonds will increase insize and will provide cover in respect of interest and scheduled principal onall classes of the New Fixed Rate Bonds (subject to certain restrictions onprincipal payments and other agreed limits). The liquidity facility is notcurrently available to holders of Class B2 Existing Fixed Rate Bonds and ClassB3 Existing Fixed Rate Bonds; and • market liquidity for the New Fixed Rate Bonds is expected to increaseslightly as a result of the increase in the aggregate issue size, with the totalvalue of outstanding New Fixed Rate Bonds in issue increasing by approximately20% above the total value of the Existing Fixed Rate Bonds currently in issue. A Special Committee of the Association of British Insurers, representingapproximately 34% of the principal amount outstanding of the Existing Fixed RateBonds, has considered the proposals. The members of the Special Committee haveindicated that they find the proposals acceptable, that they intend to vote infavour of the Proposals in respect of their holdings and that they will beinviting other ABI members to consider a similar course of action. Effect on British Land Under the Proposed Transaction, British Land will be raising approximately £750million of financing secured on the BLSSP portfolio in a simplified structurewith improved covenants and sufficient operational flexibility to address itsbusiness needs going forward. As part of this refinancing, British Land will beraising £52 million of additional funding. British Land will incur a pre-tax exceptional charge of approximately £104million, (Note 4) mainly due to the difference between the redemption value and book/nominal value of its existing debt. However, the Proposed Transaction isexpected to result in a recurring annual positive impact on pre-tax profits ofapproximately £7 million (£5 million after tax). The Proposed Transaction isexpected to reduce the weighted average cost of all debt secured on theportfolio from the current 6.75% to approximately 4.93% and reduce BritishLand's ongoing headline cost of debt overall on a pro forma basis from 5.87% toapproximately 5.70%. The impact of the exceptional charge will be to reduce adjusted net asset value(Note 5) ("NAV") by £73 million, equivalent to 14 pence per fully diluted share and 1% of British Land's fully diluted adjusted NAV per share as at 30 September2005. However, there will be virtually no effect on British Land's NNNAV, "triple net" asset value, that is, broadly, adjusted net asset value ("NAV") less the post-tax mark to market of debt and derivatives and less contingent capital gains tax. The Proposed Transaction, which is subject to the approval of holders of eachclass of the Existing Fixed Rate Bonds, is expected to close in early March2006. Notes:(4) The exceptional charge includes an amount relating to the EarlySolicitation Fee, which is assumed to be payable to all Existing Fixed RateBondholders, though the actual amount will depend on the number of suchbondholders submitting their voting instructions in the required form on orprior to 1 February 2006.(5) Adjusted net asset value per diluted share as at 30 September 2005 of1,256 pence, stated after adding back the £132 million capital allowance effectsof IAS 12; the £73 million surplus on development and trading properties; the£990 million contingent taxes on revaluation gains (net of goodwill); and the£63 million fair value adjustments for debt and related derivatives (net ofdeferred tax). 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 fixed spread as stated in thetable, expressed on an annual 30/360 day count basis, compounded quarterly.Subject to certain exceptions, the redemption price will be settled by deliveryto the holders of New Fixed Rate Bonds at a discount to the current market pricefor similarly rated securities. Indicative terms of the Proposals to Existing Fixed Rate Bondholders based onyields on 16 January 2006 are summarised in the table below. Class Existing Existing Final Benchmark Redemption New New New Nominal Coupon Maturity Reference Spread Nominal Issue Coupon Security (Note 6) Spread (Note 6) A2 £209m 6.453% 2028 UKT 4 3/4's 52 bps £258m 46 bps 4.439% of 2020 B2 £209m 6.994% 2028 UKT 4 3/4's 137 bps £243m 117 bps 5.141% of 2020 B3 £41m 7.239% 2028 UKT 5's 177 bps £48m 157 bps 5.462% of 2025 £459m 6.769%(Note 7) £549m 87 bps 4.840% (6) Illustrative pro forma based on market pricing at the close of business on16 January 2006. Final pricing will be determined by reference to yields on therelevant Benchmark Reference Securities on the Pricing Date. Existing FixedRate Bondholders will also receive accrued interest payable and the EarlySolicitation Fee (as applicable) in cash.(7) Average cost of debt weighted by nominal value. 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 ("Morgan Stanley") solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000. Morgan Stanley, togetherwith The Royal Bank of Scotland plc ("RBS"), are acting for WerretownSupermarkets Securitisations plc, British Land and BL Superstores Finance PLC inconnection with the Proposed Transaction and no one else, and will not beresponsible to anyone other than Werretown Supermarkets Securitisations plc,British Land and BL Superstores Finance PLC for providing the protectionsoffered to clients of Morgan Stanley and/or RBS nor for providing advice inrelation to the Proposed Transaction. The address of Morgan Stanley is 25 CabotSquare, Canary Wharf, London E14 4QA. This press release does not constitute an offer to sell or the solicitation ofan offer to buy securities of BL Superstores Finance 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 herein.Any investment decision as to any purchase of securities referred to hereinmust be made solely on the basis of information contained in the final form ofthe Offering Circular of BL Superstores Finance PLC and no reliance may beplaced on the completeness or accuracy of the information contained in thispress 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 BLSSP portfolio consists of 35 superstores located throughout England andWales. 25 of the stores are classified as out-of-town/edge-of-town/suburban,and 10 are classified as town or district centre. The current portfolio value, as of 30 September 2005, is £1,128 million, withpassing rent of £56.4 million; however, there are a number of rent reviewscurrently under negotiation, expected to be settled before the closing of thetransaction. The current stabilised rent is £59.1 million. British Land first securitised the BLSSP portfolio in 2001 and subsequentlytapped the transaction in 2003, both through issues by Werretown SupermarketsSecuritisations PLC. Morgan Stanley & Co. International Limited and The Royal Bank of Scotland plcare acting as Solicitation Agents and Joint Lead Managers and Joint Bookrunnersin connection with the Proposed Transaction. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
British Land